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23 Jan 2026

Econ Digest

The rupiah weakened to a new record low amid capital outflows and structural pressures.

คะแนนเฉลี่ย
  • The rupiah has hit a new record low, moving in the opposite direction of the Thai baht, reflecting Indonesia‑specific pressures. The rupiah weakened to 16,981 IDR/USD on January 20, 2026 (Bank Indonesia), marking its weakest level on record, while the Thai baht continued to trade on the stronger side.
  • Capital outflows and structural factors have made the rupiah more vulnerable than its regional peers. Key pressures include (1) the Fed's delay in cutting interest rates, keeping the US dollar strong and prompting capital outflows from emerging markets; (2) Indonesia's high reliance on foreign capital, with foreign investors holding around 13% of government bonds, making the currency sensitive to fund flows; and (3) rising twin‑deficit risks, with the fiscal deficit nearing 3% of GDP and the current account balance facing a higher risk of returning to deficit.
  • Looking ahead, the exchange rate may become more stable but will continue to be driven mainly by global capital flows. The rupiah has room for lower volatility in the second half of 2026 if the US dollar begins to weaken following monetary policy easing by the Fed. Nevertheless, policy credibility and fiscal discipline remain key factors shaping capital flows, while the central bank's role can help mitigate volatility.
  • Despite being the weakest currency in ASEAN, this does not constitute a repeat of the 1997–1998 crisis. The current depreciation of the rupiah has been gradual, unlike in 1998, when the currency depreciated by around 85% within a single year. Moreover, Indonesia's current economic structure is more resilient, supported by lower external debt, a well‑capitalized banking system, and ample international reserves, keeping the risk of a financial crisis relatively low.

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Econ Digest

Indonesia