Why Bank Indonesia Sees Rupiah as Undervalued

April 27, 2026 | 06:05 pm

TEMPO.CO, Jakarta - Bank Indonesia Governor Perry Warjiyo noted that the rupiah's exchange rate, currently hovering at 17,000 per US dollar, has become undervalued. A currency is considered undervalued when its market price falls below its fundamental value, despite strong underlying economic performance.

"We emphasize that the current exchange rate of the rupiah is undervalued compared to its fundamental value," Perry stated during a press conference following the Board of Governors meeting on Wednesday, April 22, 2026.

As of Monday morning, April 27, 2026, the rupiah remained above 17,200 per US dollar. Last week, the currency plummeted to 17,315, marking an all-time low.

What Is Driving This Undervaluation?

Permata Bank Chief Economist Josua Pardede explained that a wide gap has emerged between the rupiah's current market value and its fundamental economic calculations.

Josua assessed the rupiah’s fundamental value using fair value indicators. Based on these calculations, the US dollar should have stood at approximately Rp16,407 in March 2026. At that time, the rupiah’s Real Effective Exchange Rate (REER) was at 93.5, suggesting it was 3.1 percent cheaper than its fair value, about 500 points below its average March position.

However, with the rupiah now trading around 17,295–17,300 per US dollar, the deviation from the fair value of Rp16,407 has widened to roughly 5.4 percent, representing a gap of about 890 points per US dollar.

Using a more conservative approach, Josua estimated that the rupiah’s fundamental value should currently range between 16,300 and 16,600 per US dollar. Consequently, the disparity between the actual market rate and the currency's fundamental level has reached between 4 and 6 percent.

Nevertheless, Josua cautioned that an undervalued rupiah does not guarantee an easy recovery. "The market today is not only assessing fundamentals, but also risks," he remarked.

The rupiah’s decline stems from a combination of high oil prices, Middle East tensions, domestic dollar demand for imports and dividend repatriation, and concerns regarding the fiscal burden of energy subsidies.

Last Thursday, the rupiah slipped past 17,300 as global oil prices remained high at approximately US$104 per barrel. This coincided with seasonal dollar demand and investor anxiety over the impact of energy subsidies.

According to Josua, Bank Indonesia's claim that the rupiah is undervalued is reasonable, but must be viewed with caution. While quantitative calculations show the rupiah is too cheap, the market continues to price in significant risk. "The market still demands a substantial risk premium before it is willing to bring the rupiah back to its fundamental range."

Read: Analyst: IHSG Oversold, Potential for Rebound Emerges

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