Indonesia's Rupiah Slides to Near-Record Low Amid Interest Rate Puzzle

The Indonesian rupiah has been steadily declining against the US dollar despite Bank Indonesia maintaining high interest rates and a weaker dollar index. As of early February 2026, the rupiah traded near 16,300 per dollar, its lowest level since the Asian Financial Crisis.

A key driver behind the rupiah's decline is a widening current account deficit, driven by robust imports of raw materials and capital goods. This has led to persistent capital outflows from foreign portfolio investors, with foreign holdings of Indonesian government bonds falling by approximately $1.2 billion in January 2026.

The US dollar index has retreated from its November 2025 peak of 108, dipping to around 104 in early February. However, the rupiah has not benefited as much as its peers, with the Thai baht and Malaysian ringgit appreciating by 1-2% over the same period.

The government's plan to increase social spending ahead of elections has widened the fiscal deficit, adding to investor caution. Analysts attribute Indonesia's specific vulnerabilities to its heavy reliance on commodity exports, particularly coal and palm oil, whose prices have softened.