Indonesia’s central bank has made a decisive move to stabilize the rupiah, which has recently hovered near five-year lows amid growing concerns over the country’s economic outlook. The currency’s decline comes as fears mount over the sluggish pace of economic growth and the expensive policies of President Prabowo Subianto, which have raised doubts among investors.
The intervention in the foreign exchange market follows a dramatic slide in Jakarta’s main stock index, which plunged as much as 7.1% to its lowest level since 2021. While the equity market regained some ground on Wednesday, rising by about 1%, the rupiah continued its decline, weakening by as much as 0.7% against the dollar.
Edi Susianto, the executive director of the central bank’s monetary department, emphasized the importance of the intervention, stating that the bank was taking bold action to stabilize the rupiah and restore balance between foreign exchange supply and demand. “We are boldly in the market to ensure the balance of FX supply and demand in order to maintain market confidence,” he said.
Investor anxiety is growing as a series of weak economic indicators have raised concerns about the country’s growth prospects. Recent data shows a decline in purchasing power and consumer confidence, which economists attribute to a shrinking middle class, a struggling manufacturing sector, and a reduction in formal employment opportunities—all amid a global economic slowdown. These concerns have compounded the pressure on Indonesia’s financial markets, with many observers questioning the sustainability of President Prabowo’s ambitious fiscal policies.
The central bank is set to announce its interest rate decision later today, and while many economists expect the rates to remain unchanged, some believe a rate cut could be on the horizon to address mounting growth concerns. OCBC’s senior ASEAN economist, Lavanya Venkateswaran, explained, “Bank Indonesia is caught between a rock and a hard place. We lean towards a rate cut, as signs of weakening growth momentum have become increasingly evident in recent weeks. We believe it would be prudent for BI to prioritise growth at this juncture.”
In an additional effort to bolster market confidence, Indonesia’s securities regulator has allowed companies to repurchase their shares without shareholder approval for a six-month period. This move is seen as an attempt to stabilize the equity market and restore investor confidence.
Investor sentiment has also been shaken by the policies of President Prabowo, who recently launched a costly nationwide free meals program for schoolchildren and pregnant women. The program is expected to cost $28 billion annually, putting significant strain on the state budget. While efforts to boost government revenue have faltered, with state revenue falling by a fifth in the first two months of the year, concerns over fiscal sustainability are growing.
Speculation regarding the resignation of Finance Minister Sri Mulyani Indrawati, which she denied earlier this week, has further unsettled the market. Additionally, investors are wary of potential political interference and lack of transparency surrounding Indonesia’s newly launched sovereign wealth fund, Danantara, which has control over some of the country’s largest state-owned enterprises.
