Rupiah Weakens by 29 Points to Rp17,722, Analyst Explains Why

JAKARTA, Jakartaweekly.com — The Indonesian rupiah came under pressure against the US dollar at the close of trading on Monday, August 31, 2026. The rupiah weakened by 29 points to Rp17,722 per US dollar, after earlier falling as much as 65 points.

Ibrahim Assuaibi, Director of PT Traze Andalan Futures and an economic, currency, and commodities analyst, said the rupiah’s movement continued to be influenced by external sentiment, particularly developments in geopolitical conflicts and the direction of US monetary policy.

The US Dollar Index, he said, strengthened in Monday’s trading amid heightened geopolitical uncertainty following a US strike on two missile launchers on Larak Island, Iran, in the Strait of Hormuz, on Sunday, August 30, 2026.

“This was the first known US attack on the Gulf country since late July. In response, Iran attacked two US air bases in Jordan, Iranian media reported on Monday, citing a statement from Iran’s Islamic Revolutionary Guard Corps,” he said in Jakarta on Monday, August 31, 2026.

Amid the escalation, negotiations aimed at ending the conflict remain deadlocked. Efforts by mediators to reopen the Strait of Hormuz have also drawn close attention from investors, as the strategic waterway previously carried around one-fifth of the world’s oil supplies before the war broke out in late February.

Ibrahim said pressure on financial markets was also being driven by US policy toward Iran. US Treasury Secretary Scott Bessent, he noted, said Washington could impose new secondary sanctions on Iran every week, with the aim of cutting the country off from the dollar-based financial system.

Hawkish Signals from the Fed

Meanwhile, sentiment toward the US dollar has strengthened further following Federal Reserve Chair Kevin Warsh’s remarks at the Jackson Hole Symposium.

Warsh emphasized that price stability should remain the US central bank’s primary focus. According to Ibrahim, the remarks prompted markets to increase bets on a possible Fed interest-rate hike at its September meeting.

Ibrahim said Warsh stressed that the Fed still needed to ensure that core inflation was moving toward its 2% target. If that progress remains unconvinced, the US central bank still has work to do to bring inflation under control.

Warsh also said, he added, that current financial conditions could hardly be described as restrictive. Credit and lending markets, according to Warsh, have shown only limited signs of tightening as a result of monetary policy.

Ibrahim said the developments could help sustain the US dollar’s appeal while putting additional pressure on emerging-market currencies, including the rupiah.

Energy Subsidies Could Add to Fiscal Pressure

On the domestic front, Ibrahim highlighted the risk of a growing burden from energy subsidies and compensation amid geopolitical uncertainty and rising global energy prices.

As of the end of June 2026, realized spending on energy subsidies and compensation had reached approximately Rp233 trillion. The figure is expected to rise further by year-end, potentially placing greater pressure on the government’s fiscal position in 2027.

According to Ibrahim, Indonesia’s energy subsidy requirements are heavily influenced by external factors, particularly global energy prices and the rupiah exchange rate. In addition, domestic energy consumption is another key variable determining the size of the subsidy burden.

The rupiah’s depreciation against the US dollar, he said, also raises the cost of energy procurement. This could ultimately increase the government’s budgetary requirements for energy subsidies and compensation.

Ibrahim estimates that energy subsidies and compensation could reach around Rp526 trillion by the end of 2026. That would represent a potential increase of nearly Rp200 trillion from the initial allocation in the state budget, which stood at around Rp338 trillion.

2027 Fuel Subsidy Budget Set to Rise

Fiscal pressure is also reflected in the government’s 2027 budget plan. The administration of President Prabowo Subianto has set aside a higher subsidy allocation for certain fuel products than the estimated realization under the 2026 state budget.

According to the Financial Note accompanying the 2027 Draft State Budget (RAPBN), subsidies for certain fuel products, including Pertalite and diesel fuel, are projected at Rp28.7 trillion.

The figure represents an increase of approximately 8.71% from the estimated 2026 realization of Rp26.4 trillion.

Meanwhile, the proposed energy subsidy budget for 2027 stands at Rp272.94 trillion, up 20.1% from the estimated 2026 realization of Rp227.25 trillion.

The developments underscore that rupiah movements are driven not only by foreign-exchange market sentiment but also have implications for the government’s fiscal burden, particularly when global energy prices rise.