Bank Indonesia (BI) is actively intervening in the foreign exchange market to stabilize the Indonesian Rupiah, which recently reached its weakest point since August 1, 2025, trading at 16,945 per U.S. dollar. This action by the central bank occurs during a period of significant domestic activity, including widespread student protests and a notable downturn in the stock market. Despite these pressures, BI and the stock exchange regulator maintain that the nation's underlying economic fundamentals remain strong.
The rupiah's depreciation of nearly 1% on August 29, 2025, coincided with a 2% drop in Indonesia's stock index, which fell to its lowest level since August 12. The market's volatility is partly attributed to ongoing student protests. These demonstrations gained momentum following a fatal clash between protesters and police on August 28, 2025. Initially sparked by proposed increases in parliamentary housing allowances, the protests have broadened to encompass wider economic frustrations, including the rising cost of basic foodstuffs and education, and concerns over mass layoffs.
In response to the currency's weakening, Bank Indonesia has committed to active intervention in both offshore and onshore non-deliverable forward markets, as well as the spot market. The bank also plans to continue purchasing government bonds on the secondary market to ensure the rupiah's movement aligns with economic fundamentals. This proactive stance is consistent with previous interventions, such as the one in April 2025, aimed at bolstering the rupiah against global economic pressures.
To further support foreign exchange reserves and currency stability, the Indonesian government implemented a regulation effective March 1, 2025, requiring natural resource exporters to retain their foreign exchange proceeds onshore for at least one year. This policy is projected to inject an estimated $80 billion to $90 billion annually into Indonesia's foreign exchange reserves, which stood at $155.7 billion at the end of December 2024. The objective is to increase dollar liquidity within the domestic market, thereby mitigating the rupiah's volatility without necessitating constant central bank intervention.
While economic fundamentals are cited as strong by officials such as Chief Economic Minister Airlangga Hartarto, the confluence of domestic political unrest and global economic factors creates a complex environment. Analysts suggest that market confidence will depend on the swift resolution of social, political, and security issues. The Indonesian economy, which grew by 5.12% in the second quarter of 2025, faces the challenge of maintaining stability amidst these evolving conditions. The central bank's commitment to market intervention, coupled with government policies to bolster reserves, signals a determined effort to navigate these turbulent times and uphold economic resilience.