USD/IDR rises above 16,600 toward highs since 1998, BI intervenes in spot markets
- USD/IDR appreciates toward highs of 16,800, last seen in June 1998 during the Asian Financial Crisis.
- A Bank Indonesia official confirmed that the central bank had stepped in to stabilize the spot currency and bond markets.
- Traders adopt caution ahead of President Trump’s scheduled tariff announcement on April 2.
The USD/IDR pair continues its upward momentum for the third straight session, trading above 16,600 during European hours on Tuesday. It approached the high of 16,800, last seen in June 1998 during the Asian Financial Crisis, according to LSEG data. The weakness of the Indonesian Rupiah (IDR) is driven by growing concerns over political uncertainty, government spending, and capital outflows in Indonesia.
Fitra Jusdiman, Director of Monetary and Securities Asset Management at Bank Indonesia (BI), told Reuters, "Global uncertainty remains linked to Trump's tariff policies and geopolitical turmoil, including the impact of the trade war on China and other emerging markets in Asia."
To curb the Rupiah's decline, Indonesia's central bank intervened in the currency market. A BI official confirmed to Reuters that the central bank had stepped in to stabilize the spot currency, bond markets, and domestic non-deliverable forwards.
Additionally, genuine foreign exchange demand for repatriation and other payments contributed to the IDR’s depreciation. Edi Susianto, BI’s Head of Monetary Management, told Reuters, "We have entered the market boldly to maintain the balance of FX supply and demand."
Meanwhile, the USD/IDR pair gains further traction as traders remain cautious ahead of US President Donald Trump’s scheduled tariff announcement on April 2. The US dollar strengthened, supported by robust S&P Services PMI data and cautious remarks from Federal Reserve officials.
The S&P Global Services PMI jumped to 54.3 in March, a three-month high, up from 51.0 in February and surpassing market expectations of 50.8. The service sector rebounded sharply from its 15-month low, while the Composite PMI climbed to 53.5, its strongest expansion since December 2024.
Adding to the uncertainty, Atlanta Fed President Raphael Bostic warned that inflation progress might be slower than expected. He revised his 2025 rate cut projections downward, citing persistent price pressures and trade-related risks.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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