Bank Indonesia is prepared to intervene in the foreign exchange market to support the rupiah. The central bank is committed to ensuring that the rupiah’s value against the US dollar aligns with the currency’s underlying fundamentals.
Reported protests in Jakarta have affected both the rupiah and the Indonesian stock market. Bank Indonesia plans to use market intervention as one of the methods to stabilise the currency if needed.
Bank Indonesia’s Intervention Plan
We see Bank Indonesia’s statement as a clear signal they will defend the rupiah, especially after it weakened past the 16,500 level against the dollar last Friday. This threat of intervention should put a short-term cap on the USD/IDR exchange rate. The market was rattled by the protests, and the central bank is now drawing a line in the sand.
For derivative traders, this suggests an opportunity to sell short-dated USD/IDR call options with strike prices above the recent highs. The political uncertainty has pushed up implied volatility, making these options relatively expensive. We can look to collect this premium based on the view that the central bank will prevent any significant further depreciation in the immediate future.
We believe this is a credible threat, as foreign exchange reserves were last reported in August 2025 at a healthy $132 billion. This is a familiar strategy, mirroring the periods of intervention we saw back in 2022 and 2023 when global pressures mounted on the currency. The central bank has demonstrated a consistent willingness to use its reserves to manage volatility.
Political Situation and Currency Stability
The key risk to monitor in the coming weeks is the political situation in Jakarta. If the protests escalate, Bank Indonesia may have to spend its reserves more aggressively than planned or be forced to let the currency weaken further. Any signs of resolving the domestic conflict would strengthen the case for a stable-to-stronger rupiah.
This defense is occurring while the US Federal Reserve continues its policy of holding interest rates steady, a stance it has maintained through the summer of 2025. This creates a difficult environment for emerging market currencies, as higher US yields attract capital. Bank Indonesia is therefore fighting both domestic political headwinds and a persistently strong dollar.
