By Amanda Lee
A protester walks with an Indonesian flag in front of a police headquarters that was set on fire and looted during demonstrations in Surabaya on August 31, 2025. Southeast
The political unrest in Indonesia has gripped the country’s markets as recent protests turned deadly in Jakarta, with the benchmark index on course for its worst day in nearly five months and the rupiah languishing near multimonth lows.
Protests began in late August, after the government announced plans to raise lawmakers’ monthly housing allowance of 50 million rupiah, equivalent to about $3,045, nearly 10 times the minimum wage in Jakarta. The protests turned more violent last week after an armored police vehicle killed a motorcycle taxi driver during clashes in the Indonesian capital.
On Monday, the benchmark Jakarta Composite Index fell as much as 3.6%, which, if sustained, would be its biggest one-day percentage loss since April. The rupiah was recently flat at 16,500 against the dollar, after weakening to its May lows on Friday.
The handling of the demonstrations, which have spread beyond Jakarta, is seen as a crucial test for Prabowo Subianto, the former military general who took over as president of the world’s third-largest democracy less than a year ago.
DBS senior currency strategist Philip Wee noted that the president’s actions to quell the unrest could stabilize the rupiah.
President Subianto on Sunday addressed the outrage over rising living costs and inequality by canceling several controversial parliamentary benefits, he said. The president’s decision to cancel his planned visit to China on short notice would also serve to “reassure the people that their grievances mattered most,” Wee wrote in a note.
“The protests highlight mounting discontent with the Prabowo administration,” said Commerzbank Research analysts in a note. Consumer sentiment had already been hurt due to factors such as U.S. tariff uncertainty, they wrote.
“The sudden rise in domestic political temperature increases growth and fiscal uncertainties in our view,” Helmi Arman of Citi Research said.
Given the increased growth headwinds the economy faces, Indonesia’s monetary policy is unlikely to change course, he wrote in a note. However, the timing of rate cuts might be pushed back if foreign-exchange pressures rise significantly, the economist said.
The rupiah has also come under pressure, weakening to around 16,500 as investors reassessed the political risk amid the violent protests.
“Assuming the situation stabilizes, markets may begin to unwind the risk premium priced into the rupiah last week,” MUFG Bank’s Lloyd Chan said in a research note.
Bank Indonesia “will remain vigilant of skittish sentiment and portfolio outflow risks in the near term,” OCBC economists wrote in a report.
The central bank noted last week that it remains present, with interventions in the forex spot, bond, domestic and offshore nondeliverable forward markets, they said.
Write to Amanda Lee at amanda.lee@wsj.com
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09-01-25 0257ET
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