Indonesian Rupiah remains subdued as safe-haven demand lifts US Dollar

Over the past three days, the US Dollar has strengthened against the Indonesian Rupiah, reaching near a two-month high of 17,920. This surge occurred as the USD recovered from losses due to heightened tensions between the US and Iran. An Iranian official reported zero progress in resolving conflicts in the Gulf, while President Trump stated that the US holds total control over the strategic waterway.

Meanwhile, the Trump administration aims to increase economic pressure on Iran through broader sanctions and a potential naval blockade to restrict oil exports. Indonesia has demonstrated fiscal discipline by committing to maintain its 2026 deficit under 3% of GDP, supported by a 23% year-over-year increase in tax revenue from January to July.

The government is set to release a consumption-focused 2027 budget proposal later this week. In a related development, Bank Indonesia's leadership is undergoing changes with Aida Budiman nominated as Senior Deputy Governor and Destry Damayanti as the sole candidate to succeed Governor Perry Warjiyo. Analysts at OCBC noted that the Rupiah strengthened to near a two-month high following Destry Damayanti's nomination, as markets appeared to take comfort from her extensive experience at BI and expectations for policy continuity, including her emphasis on currency stability.