Indonesian rupiah weakens as domestic protests and inflation risks loom

The USD/IDR pair extended its gains during Thursday's Asian session, marking a third consecutive day of advances, with the pair last trading around 17756.65435. The Indonesian rupiah remains under pressure amid fragile domestic sentiment, while concerns over looming inflation risks further undermined support for the local currency.

**Domestic sentiment and seasonal pressures intertwine**

Indonesia's finance minister and central bank governor have previously stated that the current pressure on the rupiah against the dollar is temporary, driven more by seasonal factors and short-term sentiment than by domestic economic fundamentals. Finance Minister Purbaya Yudhi Sadewa urged the market not to overreact to volatility, emphasizing that the country's economic fundamentals remain sound. The government's current focus is on consolidating the economic base and ensuring macroeconomic growth is not disrupted by foreign exchange fluctuations.

**Inflation and import costs create dual pressures**

Market reports indicate that as a net oil importer, Indonesia's domestic liquefied petroleum gas production capacity falls far short of demand, with the majority relying on dollar-denominated imports. Following the surge in international oil prices amid heightened Middle East tensions, combined with the rupiah's continued depreciation, crude import costs have climbed sharply, creating a dual inflationary effect. In the long term, Indonesia's oil and gas trade balance remains in deficit, and currency depreciation not only fails to improve the trade balance but also pushes up imported inflation, further worsening the trade environment.

**Short-term outlook hinges on sentiment recovery**

Despite assurances from monetary and fiscal authorities that depreciation pressures are temporary, with domestic protest sentiment yet to subside and inflation risks approaching, the USD/IDR pair may remain biased toward strength with elevated volatility in the near term. Market participants are watching for clearer stabilization signals from authorities and whether domestic sentiment can gradually recover.