The Rupiah Under Repeated Stress: A VAR Analysis of Its Interdependence with ASEAN and Developed Currency Markets
DOI:
https://doi.org/10.59976/jebin.v4i1.360Abstract
Between 2020 and 2025, the Indonesian Rupiah weakened from an average of IDR15,287 per US Dollar to a low of IDR17,465 in April 2025, its weakest level since 1998, after passing through the Covid-19 shock, the Federal Reserve's steepest tightening cycle in four decades, and the 2025 tariff shock in succession. How closely these repeated pressures tied the Rupiah to its regional and developed-market counterparts remains unclear, since existing studies either stop short of 2025 or treat the Rupiah as one of many currencies in broad regional panels rather than as the central focus. This study addresses that gap by estimating a seven-variable vector autoregression on monthly data from January 2020 to December 2025, covering the Rupiah, the Malaysian Ringgit, the Philippine Peso, the Singapore Dollar, the Thai Baht, the Japanese Yen, and the Euro, and applying generalised impulse response functions and generalised forecast error variance decomposition to trace how shocks in each currency transmit to the others. The results show that the Rupiah's own shocks explain only 25.7 percent of its variance from the third month onward, while the four ASEAN currencies jointly explain 56.1 percent, led by the Singapore Dollar at 17.6 percent, compared with just 18.1 percent from the Euro and Yen combined. The Rupiah's correlation with the Euro is positive, while its correlation with the Yen is negative, revealing an uneven relationship with developed markets. These findings suggest that Indonesian monetary authorities have limited capacity to manage exchange rate stability through domestic measures alone, and that closer regional monitoring, particularly of Singapore, may offer more practical value than comparable attention to developed-market currencies.
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