The rupiah may struggle to extend its recent rally as lingering concerns over spending and trade temper optimism over Indonesia's efforts to bolster policy credibility. The currency has gained about 1.5% against the dollar since the start of August, making it Southeast Asia's best performer, though momentum has begun to fade.

The rupiah may weaken to 17,900 per dollar by year end, according to BNP Paribas SA, while HSBC Holdings Plc sees it slipping further to 18,200. Analysts cite fiscal pressures and potential rate cuts as headwinds that could reverse recent gains.

Despite the currency's strong August performance, structural challenges including budget deficits and external trade dynamics continue to weigh on investor sentiment. The central bank's policy credibility remains under scrutiny as authorities balance growth support with currency stability.