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The Indonesian rupiah (IDR) has been remarkably stable despite weeks of protests and the unexpected dismissal of former Finance Minister Sri Mulyani Indrawati. After an initial knee-jerk sell-off, the IDR’s downside was limited to 16500 per USD, supported by Bank Indonesia’s active interventions in the foreign exchange and bond markets. The absence of aggressive follow-through selling suggests that investors see the current unrest as domestic politics rather than a systemic economic shock.
The resilience of the Indonesian markets reflected the country’s relatively sound macro fundamentals. For example, CPI inflation is well contained in the lower half of the official 1.5-3.5% target range; the trade surplus is 46% YoY higher in the first seven months of this year; and foreign reserves were 2.3 times short-term external debt in 2Q25. Still, questions linger about how fiscal and monetary policy will align to achieve the president’s ambitious 8% economic growth target. Yet, in a world unsettled by US-led trade uncertainty, Indonesia is also increasingly viewed as a potential growth engine, leveraging its status as the world’s fourth most populous nation and ASEAN’s largest economy.
Externally, it was striking that other countries did not criticize the Prabowo government over its handling of domestic political challenges. ASEAN has treated Indonesia’s unrest as a domestic political affair, unlike Myanmar, where systemic military abuses have been deemed a regional crisis requiring a collective response. What matters now is the government’s actual policy direction – whether Prabowo can balance his ambitious growth agenda and fiscal discipline acceptable to rating agencies, while keeping trade partners confident in Indonesia’s openness and stability. Until that balance becomes clearer, markets may reserve judgment, viewing the recent turbulence as a political episode rather than a structural break in Indonesia’s growth story.
Next week, we expect Bank Indonesia to further support the IDR by keeping its policy rate unchanged at 5% on September 17. Later the same day, the Fed is widely expected to resume its rate-cutting cycle with a 25-bps cut to 4.00-4.25% and signal more rate cuts into 2026.
Similar lessons can be drawn from the EUR and GBP for the IDR. EUR/USD, despite headwinds from the collapse of the Bayou government and fiscal slippage worries in France, rebounded by 0.3% to 1.1734 overnight after the European Central Bank guided that no further easing is likely this year. GBP/USD also rebounded by 0.3% to 1.3574 overnight, as UK fiscal concerns eased alongside lower 30-year Gilt yields, mirroring declines in US Treasuries on dovish Fed expectations. The delay in the UK Autumn Budget to November 26 gives the Office for Budget Responsibility (OBR) more time to refine its forecasts, especially after UK GDP surprised with a 0.4% MoM expansion in June and offset the 0.1% MoM contractions in the previous two months; GBP will welcome another surprise increase in today’s July GDP. Next week’s CPI data should reinforce the Bank of England’s guidance for inflation to keep rising to 4% YoY in September from 3.8% in July, and its stance to hold rates for the rest of this year. Prime Minister Kier Starmer’s latest cabinet reshuffle, following the resignation of Deputy Prime Minister Angela Rayner, reflected the government’s intention to retake control of the narrative, with a focus on delivering long-term economic stability through tough budget decisions.
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Arthur C. Clarke
September 12 in history
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