One Step Closer to a Weakened Rupiah to Rp18,000 per US Dollar as a Result of Inflation and Middle East Conflicts

Rupiah and US dollar (between)

JAKARTA - The rupiah exchange rate again experienced pressure against the US dollar (USD) in Wednesday, June 3 trading.

Referring to Bloomberg data at 10.17 WIB, the rupiah was recorded at Rp17,926 per US dollar or weakened 87.50 points equivalent to 0.49 percent.

For information, on Tuesday, June 2, 2026, quoting Bloomberg, the rupiah spot exchange rate closed down 0.19 percent to Rp17,839 per US dollar.

Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) of the Bank Indonesia (BI), closed up 0.11 percent to the price level of Rp17,863 per US dollar.

Doo Financial Futures analyst Lukman Leong said the rupiah has the potential to weaken again against the US dollar as geopolitical tensions in the Middle East increase.

He added that the escalation of the conflict triggered market concerns about the prospects for peace and pushed up world oil prices.

"The direct impact is on the rise in prices / inflation, especially since our economy depends on imports. Inflation reduces purchasing power and suppresses economic growth," he told VOI, Wednesday, June 3.

Responding to the possibility of the rupiah breaking through the level of Rp18,000 per US dollar, Lukman assessed that the level was no longer far away and was relatively easy to achieve if BI did not carry out aggressive interventions or held a Board of Governors Meeting outside the schedule to raise interest rates.

"RP18,000 is not far away, it is very easy to achieve if BI does not intervene and hold a governor meeting outside the schedule to raise interest rates. (Range) Rp17,850-Rp18,000," he said.

Meanwhile, Bank Permata's Chief Economist, Josua Pardede, assessed that the weakening of the rupiah to reach Rp17,900 per US dollar reflects a combination of increasingly strong global and domestic pressures, not just seasonal factors.

According to him, global sentiment is still dominated by uncertainty over the US-Iran conflict, the risk of energy supply disruptions through the Strait of Hormuz, high oil prices, and increased demand for the US dollar as a safe haven asset.

He added that the currencies of Asian countries are still very sensitive to the development of the conflict, while high energy prices are a burden for energy-importing countries such as Indonesia.

"This condition is very relevant for Indonesia because the import of oil, LPG, and logistics costs require dollars, so every increase in energy prices directly increases foreign exchange demand and weakens the rupiah," he told VOI, Wednesday, June 3.

On the domestic side, Josua highlighted the weakening of the trade surplus as one of the main factors.

Indonesia's trade surplus in April 2026 was recorded at only around US$0.09 billion, down sharply from US$3.32 billion in March.

Cumulatively, the trade surplus for January-April 2026 also shrank to US$5.64 billion from US$11.07 billion in the same period last year.

According to him, this condition causes the supply of dollars from export activities to be increasingly limited, as well as the import of raw materials, energy, and capital goods still growing high so that the need for dollars continues to increase, as a result, the increasingly thin trade surplus is no longer a strong buffer for the stability of the rupiah exchange rate.

"So, the rupiah is weakening not because Indonesia has a direct trade deficit, but because the quality of its surplus has weakened and is no longer strong enough to act as a buffer for the exchange rate," he explained.

According to him, inflationary pressure is also beginning to be a concern for the market, namely inflation in May 2026 increased to 3.08 percent from 2.42 percent in April, with the increase triggered by the increase in production costs, energy prices, fuel, transportation, food, and seasonal demand ahead of Iduladha.

In addition, the May 2026 Manufacturing PMI showed an increase in production cost burden which was one of the fastest since the survey began in 2011.

At the same time, production activity was recorded as declining for three consecutive months, and this condition strengthens market concerns about potential inflationary pressures, a decline in business margins, and a weakening of people's purchasing power.

However, he added that seasonal factors such as the need for dollars for dividend payments and the implementation of the hajj pilgrimage began to ease after reaching their peak in April and May, in theory, this could reduce the pressure on the demand for dollars in the domestic market during June.

However, Josua emphasized that the reduction in seasonal factors is not enough to significantly strengthen the rupiah if oil prices remain high, the trade surplus is still thin, foreign capital flows are not strong, and the market is still watching fiscal risks.