Indonesia’s rupiah headed for its largest weekly decline since late May as rising U.S. Treasury yields and a stronger dollar intensified pressure on emerging-market currencies.
The rupiah weakened as much as 0.3% to 17,935 per dollar Friday and was down nearly 1% for the week.
The currency has fallen roughly 7% this year, making it the weakest-performing emerging Asian currency.
Bank Indonesia held its benchmark rate at 5.75% this week after increasing rates by a cumulative 100 basis points during May and June to defend the currency.
The central bank has indicated that it prefers to rely on market-based measures to stabilize the rupiah rather than immediately tightening monetary policy again.
External conditions remain difficult. Higher U.S. yields increase the relative attractiveness of dollar assets, while elevated oil prices place additional pressure on an energy-importing economy.
Domestic fiscal concerns are adding to the strain. Fuel subsidies designed to shield consumers from higher energy prices have increased pressure on government finances, while Indonesian equities have also weakened sharply.
The Jakarta Composite was down 0.6% Friday and more than 27% for the year at the latest reporting point.
For investors, the key question is whether intervention and capital inflows can stabilize the rupiah or whether persistent dollar strength eventually forces Bank Indonesia to reconsider its current rate stance.
