Rupiah Hits Record Low: Indonesia Faces Growing Pressure

The Indonesian rupiah has fallen to a new record low against the US dollar, with global rate expectations and domestic concerns weighing on investor confidence.

The rupiah is under renewed pressure.

The currency fell as much as 0.3% to 18,204 per US dollar on Thursday, breaking its previous record low of 18,190 set in June. It has now lost more than 8% against the dollar this year, making it Asia's worst-performing currency.

A stronger US dollar has added to the pressure, as markets increasingly expect the Federal Reserve to resume rate hikes next month. Higher US interest rates could make dollar assets more attractive and put further pressure on emerging-market currencies.

But the problems are not just coming from overseas.

Investor confidence has also been shaken by MSCI's warning over Indonesia's market accessibility and transparency. If the country is downgraded from emerging-market status to standalone-market status, Goldman Sachs estimates that around $5.6 billion in passive investment funds could leave the market.

Rising oil prices are adding another challenge. Higher fuel subsidy costs could put further strain on government finances, while concerns over policy uncertainty and a possible sovereign credit rating downgrade are weighing on sentiment.

Despite the rupiah's record decline, Indonesia's stock market rose 0.8% on Thursday, while the 10-year government bond yield held steady at 7.62%.

For now, the rupiah remains caught between a stronger dollar and growing concerns over Indonesia's domestic outlook. Whether it can regain ground will depend on both global interest-rate expectations and the government's ability to restore investor confidence.