Throughout 2025, the rupiah has weakened by more than 3%, making it one of the worst-performing emerging market currencies.

Meanwhile, Indonesia’s stock market index plunged 7.1% on March 18, marking its steepest drop in over a decade. The sharp decline triggered a temporary trading halt—the first since the COVID-19 pandemic.

Fitra Jusdiman, Director of Bank Indonesia, stated that the central bank has intervened in multiple markets, including the FX spot market, non-deliverable forward (NDF) market, and domestic bond market, to stabilize the rupiah.

Bloomberg reports that Indonesia’s financial and stock markets are facing severe volatility, largely due to concerns over the country’s fiscal position.

Once a favored investment destination in Southeast Asia, Indonesia is rapidly losing its appeal among global investors. This is primarily driven by fears that President Prabowo Subianto’s populist policies could breach the country's long-standing 3% budget deficit rule and expand the military’s role in the civilian government.

Since taking office in October 2024, Prabowo has rolled out large-scale populist initiatives, including a $30 billion annual free lunch program. This spending push is bringing Indonesia’s budget deficit dangerously close to the legal limit of 3% of GDP.

According to Moh Siong Sim, a strategist at Bank of Singapore, the rupiah’s weakness is likely driven by fiscal concerns and seasonal foreign investor dividend outflows. However, Bank Indonesia is expected to continue stabilizing excessive currency volatility—at least until the U.S. announces retaliatory tariffs on April 2.

The sell-off in the rupiah follows a major stock market decline, which has led to foreign funds pulling out over $2 billion from Indonesia. Additionally, Indonesian bonds have underperformed U.S. Treasuries so far this year.

https://www.bangkokbiznews.com/finance/1172626