The Federal Reserve's "hawkish" stance severely weakened the Indonesian rupiah, prompting the Indonesian central bank to intervene urgently in the market

The Federal Reserve's hawkish stance has once again stirred the Asian foreign exchange market.

The Bank of Indonesia confirmed on Thursday that it has intervened in the foreign exchange market to stabilize the Indonesian rupiah, which has come under pressure due to the Federal Reserve's hawkish position. After holding rates steady in July, Fed Chairman Jerome Powell previously hinted that the decision on rate cuts in September remains uncertain, pushing the dollar to a two-month high and broadly impacting emerging market currencies.

According to Bloomberg, Erwin Hutapea, Executive Director of the Monetary Securities Management at the Bank of Indonesia, stated on Thursday that the central bank is ensuring the stability of the rupiah at a level consistent with its fundamental value through various measures in the market.

The rupiah fell by as much as 0.4% to 16,460 against the dollar in early trading on Thursday, marking its lowest level in over a month.

The Bank of Indonesia Uses Multiple Tools for Market Intervention

According to Hutapea, the Bank of Indonesia is intervening in the domestic market through spot transactions, non-deliverable forward contracts (NDF), and government bond purchases, while also taking action in the offshore NDF market. He added that the central bank will continue to maintain a balance in foreign exchange supply and demand in the market.

This intervention highlights the Bank of Indonesia's emphasis on exchange rate stability. As one of the emerging market currencies in Asia, the rupiah has recently faced increasing external pressures.

Although the Fed's interest rate decision met expectations, Chairman Powell's indication that the rate action in September remains uncertain has been interpreted by the market as relatively hawkish.

An article from Wallstreetcn stated that Powell did not provide guidance on a rate cut in September during the FOMC press conference, saying it is too early to assert whether the Fed will lower the federal funds rate in September as the financial markets expect. He mentioned that the current interest rate level is appropriate given the uncertainties surrounding tariffs and inflation, cooling market expectations for a rate cut in September.

Strong Dollar Impacts Emerging Market Currencies

Hutapea noted that the rupiah has weakened alongside other regional currencies, primarily due to the broad rise of the dollar following the Fed's relatively hawkish decision to maintain interest rates.

"This could have potential impacts on risk assets, including emerging market currencies," he said.

Data shows that the dollar index rose to a two-month high overnight, putting widespread pressure on Asian currencies, including the rupiah. The market is concerned that the strong performance of the U.S. economy may delay the Fed's rate cut timeline. Today, the dollar index has seen a slight pullback.