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Interest rates play a huge role. When the central bank of Indonesia (Bank Indonesia) raises interest rates, it makes the Rupiah more attractive to foreign investors because they can earn more interest on their investments. This increased demand can *strengthen* the Rupiah against the USD. The Federal Reserve's (the U.S. central bank) decisions on interest rates also influence the exchange rate. If the Fed raises rates, it can make the dollar more attractive, potentially strengthening it against the Rupiah. Therefore, monitoring the monetary policies of both the U.S. and Indonesia is essential for understanding the dynamics of the exchange rate.
