Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The Israeli military has told tens of thousands of Palestinians to leave the southern Gazan city of Rafah as Israel’s defence minister warned of an imminent military “operation” as talks to free Israeli hostages appeared to have stalled.

At least 100,000 civilians in eastern Rafah, along the border with Israel, should move to what Israel calls a humanitarian zone on the Mediterranean, an Israel Defence Force spokesperson told reporters, in “a limited scope” operation as part of a “gradual plan”.

Yoav Gallant, the Israeli defence minister, told troops in Gaza on Sunday that there were “worrying signs” that negotiations over a ceasefire and a hostage swap with militant group Hamas were flailing.

“The implication of this is an operation in Rafah and all of the Gaza Strip in the very near future,” he said. “We are a moment before action.”

Israel had previously suspended its plans to invade Rafah to allow for indirect negotiations with Hamas over the release of hostages to proceed, Gallant told the troops. The failure of those talks would put those plans back into play, he said.

The evacuation order came amid conflicting reports on the progress of negotiations that could see as many as 33 Israeli hostages freed by Hamas during a six-week pause in hostilities that would have delayed any Israeli operation in Rafah.

Hamas had proposed that the six-week pause be part of a broader deal in which the remaining hostages, many of them soldiers abducted during the October 7 attacks, would be freed in exchange for a more lasting ceasefire.

Israel would have simultaneously released hundreds of Palestinian prisoners, including those convicted of violence against Israeli civilians.

But a senior Israeli official said over the weekend that the IDF would “enter Rafah and destroy the remaining Hamas battalions there — whether or not there will be a temporary pause for the release of our hostages”.

A Hamas spokesperson told the Al-Aqsa TV channel that the militant group continued to insist on a “permanent ceasefire” before it would agree to free any hostages, a stumbling block that has derailed prior negotiations.

CIA director Bill Burns is expected to visit Israel after talks in recent days in Cairo and Doha with mediators on the details of the proposal, which is being brokered by the US, Egypt and Qatar.

The proposal, at present being studied by Hamas, leaves open the possibility of continued negotiations during an initial limited ceasefire. This could see more of the estimated 132 hostages — including kidnapped soldiers — freed in exchange for a “sustainable calm”.

The evacuation order came after four Israeli soldiers were killed on Sunday in a mortar attack on the Israeli side of the area being evacuated, near the Kerem Shalom border crossing that is crucial for humanitarian aid deliveries into Gaza.

The IDF spokesperson declined to say if the order was prompted by the attack. The attack “was a reminder of Hamas’s presence”, he said.

Israel’s western allies have repeatedly warned it not to invade Rafah without a detailed plan to protect the more than 1mn Palestinian civilians who have sought shelter in the southern edge of the besieged enclave.

Humanitarian conditions in Rafah remain dire, with food and water shortages that have been exacerbated by the influx of displaced Palestinians from the devastated north of the enclave. UNRWA, the UN relief agency for Palestinians, said it would continue working in Rafah despite the evacuation order, which Israel started communicating with flyers dropped from planes, text messages and phone calls.

The Mawasi humanitarian zone where Israel has told civilians to move is about the size of Heathrow airport, with tent cities set up by international aid organisations and limited field hospitals. The IDF said it would expand the “humanitarian” area.

Egypt has repeatedly said that it opposes any Israeli military operation in Rafah, especially along the so-called Philadelphi Corridor, which runs alongside its border with the Gaza Strip. A map of the evacuation order appears to also include the Rafah border crossing, a major conduit for humanitarian aid.

Gallant spoke late on Sunday with US defence secretary Lloyd Austin, who repeated Washington’s concerns that any Israeli military operation in Rafah must include a “credible” plan for protecting civilians.

The IDF spokesperson declined to comment on whether Israel’s current plans had been submitted to or approved by the US.

Prime Minister Benjamin Netanyahu’s far-right coalition allies have threatened to collapse his government if he accepts an end to the war in Gaza without dismantling the remaining Hamas battalions that Israel says are now in Rafah.

In-person classes will resume Monday at the University of California, Los Angeles, college officials said, after they were moved online following clashes on campus between pro-Palestinian protesters and police.

Demonstrations against Israel’s war on Hamas in Gaza have rocked US campuses across the country for weeks, prompting crackdowns, mass arrests, and a White House directive to restore order.

UCLA said Friday it had moved classes online after a large police contingent forcibly cleared a sprawling encampment. Clashes have also broken out between the protesters and pro-Israel counter-demonstrators.

“The campus will return to regular operations (on Monday)… and plans to remain this way through the rest of the week,” read a statement posted Sunday on the university’s website.

“A law enforcement presence continues to be stationed around campus to help promote safety,” the post added.

UCLA Chancellor Gene Block said “urgent changes” were needed in the campus’ security operations, adding that a new office would lead the effort.

“It is clear that UCLA needs a unit and leader whose sole responsibility is campus safety to guide us through tense times,” he said in a statement on Sunday.

Rick Braziel, the former head of the Sacramento Police Department, was named to lead the office.

More than 2,000 arrests have been made in the past two weeks across the United States, some during violent confrontations with police, giving rise to accusations of use of excessive force.

President Joe Biden, who has faced pressure from all political sides over the conflict in Gaza, has said that “order must prevail” on US campuses.

The Gaza war started when Hamas militants staged an unprecedented attack on Israel on October 7 that resulted in the deaths of more than 1,170 people, mostly civilians, according to an AFP tally of Israeli official figures.

Israel’s retaliatory offensive has killed at least 34,683 people in Gaza, mostly women and children, according to the Hamas-run territory’s health ministry.

bur-dhw/mca

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Indonesia’s central bank is “ready for the worst” and will provide more support for the rupiah if needed, the head of its monetary management department has said.

Bank Indonesia was prepared to intervene in the currency market — as it did last month when the rupiah hit multiyear lows — but would not rely solely on intervention, Edi Susianto, the monetary department’s executive director, told the Financial Times.

Susianto’s comments come as Asian economies brace for more currency volatility following the US Federal Reserve’s signal this month that it will hold interest rates higher for longer.

Bank Indonesia raised rates unexpectedly late last month and warned of worsening global risks, saying the rate increase was a pre-emptive move to ensure inflation remained within its target.

Indonesia was facing an “unusually” challenging environment from global and domestic factors, Susianto said in an interview.

“We believe that we are ready for the worst situation” of a more hawkish Fed and heightened geopolitical tensions in the Middle East, he said.

Countries around the world are trying to protect their currencies from a strengthening dollar amid growing expectations the Fed will delay cutting interest rates while inflation stays stubbornly above its 2 per cent target.

Bank Indonesia in April stepped into the spot, non-deliverable forwards and bond markets in a “triple intervention” to support the rupiah, Susianto said. The government also asked state-owned enterprises to limit their US dollar purchases.

Japan and Vietnam have also intervened to support their currencies, while the central banks of Malaysia and South Korea have said they are prepared to do so.

Adding to the wider pressure from a stronger dollar, Indonesia was also experiencing a cycle of dividend repatriation, Susianto said.

He said the repatriation by foreign companies, which has further boosted demand for the dollar, was expected to last until the end of May, after which the rupiah would become “more manageable”.

Since last month’s rate rise, Indonesia had noted net foreign inflows into government bonds and central bank bills, Susianto said.

Separately, central bank governor Perry Warjiyo told a news conference on Friday that it would auction rupiah securities twice a week — instead of once — from this week to attract more inflows.

Susianto said the bank was encouraging companies to use hedging instruments and pursuing efforts to deepen the market so there would be less need for central bank intervention.

Any future monetary policy action would be “data dependent”, said Susianto, declining to comment on whether the bank was prepared to raise rates further.

Before last month’s rate uplift, economists had widely expected Bank Indonesia to begin cutting rates from later this year, though some now believe the easing may not happen.

Brian Lee, an economist with Maybank Investment Banking Group, said he did not rule out another rate increase, even though the rupiah had strengthened since the surprise increase last month.

“Our base case is for the BI to maintain its policy rate at 6.25 per cent this year to safeguard rupiah stability. It’s unlikely that BI will be able to cut interest rates, given that the central bank expects the Fed to cut only in December,” said Lee.

“A resumption of rupiah’s depreciation, at the pace seen during the lead-up to April’s meeting, may trigger another BI rate hike.”