Indonesia’s rupiah has slumped to its weakest level since the 1997‑98 crisis, falling below 18,190 per dollar in early June. The drop follows a sharp 8% decline in the first half of 2026, sparking alarm among investors who once saw the currency as a stable store of value for Indonesia.

Since late 2024, the market has reassessed Indonesia’s fiscal outlook after President Prabowo Subianto took office. Rising global energy costs, driven by the Iran war, have tightened the country’s import‑heavy economy, amplifying pressure on the rupiah and widening concerns about inflation and debt sustainability for future growth and policy decisions.

In a bid to curb the slide, the central bank raised rates on June 9, ahead of schedule. The move signals a tightening stance aimed at restoring confidence, but it also risks slowing economic growth and could strain borrowers facing higher servicing costs across the banking sector for lenders and investors.

The rupiah’s plunge has pushed import costs higher, feeding domestic inflation and tightening fiscal space. Market participants now weigh the central bank’s policy stringency against potential slowdown risks. Investors will scrutinize upcoming data releases to gauge whether the tightening will stabilize the currency or trigger further depreciation in mid 2026.