Rupiah Weakens Against USD Amid Rising Oil Prices and Interest Rate Hike Expectations
The Indonesian rupiah has weakened against the US dollar, opening at Rp17,933 per USD on Friday, September 25. This decline is attributed to market expectations of a rise in US central bank interest rates and a spike in oil prices.
Permata Bank Chief Economist Josua Pardede noted that stronger-than-expected US PMI data has increased market confidence in further Fed policy tightening. He stated, 'Stronger-than-expected US PMI data significantly increases market expectations for further Fed policy tightening, with the market now factoring in a potential 50 basis point rate hike over the remainder of 2026.'
The combined PMI of the manufacturing and services sectors rose to 58.4 from 56.0 in August, marking the highest since July 2021. This has led to an increase in estimates of the Fed's interest rate hike, with a chance of a 25 basis point hike in October 2026 estimated at almost 64 percent.
The pressure on the rupiah is also exacerbated by rising oil prices due to continued US-Iran tensions. Josua emphasized that 'the increase in oil prices amid the continued US-Iran tensions is further increasing concerns about the outlook for inflation.'