Indonesian Rupiah Nears Rp 18,000 per Dollar Amid Economic Headwinds

Indonesia's currency, the Rupiah, has weakened significantly against the US Dollar, approaching the critical Rp 18,000 level. This depreciation is driven by a confluence of domestic and international factors, raising concerns about the nation's economic stability.

Analysts point to a projected slowdown in Indonesia's economic growth for the second quarter of 2026, with the government forecasting 5.4 percent growth, down from 5.61 percent in the first quarter. While the government remains optimistic about recovery in the second half of the year, supported by adequate liquidity and prudent fiscal policy, the immediate outlook is challenging.

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(Internal sentiment) The government, through the Minister of Finance, projects Indonesia's economy to grow around 5.4 percent in Q2 2026, slowing down compared to Q1 2026 which was 5.61 percent.

Adding to the pressure, Indonesia's trade balance recorded its first deficit in six years in May 2026, totaling $1.61 billion. Exports fell 5.73 percent year-on-year, primarily due to a decline in non-oil and gas exports. Conversely, imports surged by 22.16 percent, driven by increased imports of raw materials and capital goods.

Furthermore, the decision by the United States to impose new tariffs of 10 percent on Indonesian products has exacerbated the Rupiah's decline. Rising global crude oil prices, influenced by Middle East conflicts, also contribute to external pressures, potentially widening the current account deficit and further weakening the Rupiah in the third quarter of 2026.

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The increase due to the conflict in the Middle East has the potential to pressure Indonesia's external performance, from a widening current account deficit to pressure on the rupiah exchange rate in Q3 2026.