Can a Weakening Rupiah Impact the IHSG? Here's the Explanation!
On Monday, 10 August 2026, the rupiah exchange rate against the US dollar is expected to move in a volatile range of Rp17,850 to Rp17,950 per US dollar. This level is considered ‘weak’ when viewed since the Covid-19 pandemic.
When the rupiah weakens against the US dollar, many investors immediately worry that the IHSG will also fall. This concern is quite reasonable because the exchange rate is one of the macroeconomic indicators that influences market sentiment.
However, does a weakening rupiah always cause the IHSG to fall? The answer is not always.
Under certain conditions, rupiah depreciation can indeed pressure the stock market because it triggers capital outflows by foreign investors, increases companies’ import costs, and enlarges debt burdens in foreign currencies. On the other hand, some companies actually benefit when the rupiah weakens, especially issuers that earn revenue in US dollars.
Here is how the rupiah exchange rate relates to the IHSG.
What is the relationship between the rupiah and the IHSG?
The relationship between the rupiah and the IHSG is actually quite simple. When the rupiah weakens against the US dollar, the following occurs:
The rupiah exchange rate falls → Foreign investors become more cautious → Some funds leave the stock market (capital outflow) → Selling pressure increases → The IHSG has the potential to weaken.
However, it should be understood that the exchange rate is not the only factor determining the direction of the IHSG. The movement of the IHSG is also influenced by global economic conditions, interest rates, commodity prices, issuer performance, and market sentiment.
The rupiah is said to weaken when more rupiah is needed to obtain one US dollar (USD). For example:
In August 2025: 1 USD = Rp16,090.
In August 2026: 1 USD = Rp17,850.
This means the rupiah exchange rate has experienced a decline or depreciation against the US dollar. Rupiah depreciation can be influenced by various factors, such as:
strengthening of the US dollar;
an increase in the US central bank (The Fed) interest rate;
rising global economic uncertainty;
capital outflows;
geopolitical conditions;
increased demand for foreign currency.
So, does a weakening rupiah always cause the IHSG to fall? The answer is no, because there are still many other influencing factors on the movement of the IHSG, such as:
Indonesia’s economic growth;
issuers’ financial reports;
world commodity prices;
government policies;
interest rates; and
global investor sentiment.
For example, when coal, gold, or nickel prices rise, commodity stocks can strengthen and help support the IHSG even though the rupiah is weakening.
This means the relationship between the rupiah exchange rate and the IHSG is not an absolute cause-and-effect relationship.
Here are several reasons why rupiah depreciation is often followed by pressure on the stock market.
- Foreign investors tend to reduce investment
The Indonesian stock market still has a fairly large portion of foreign investors.
When the rupiah weakens, the value of their investments in their home currency also decreases. To reduce currency risk, some investors choose to sell shares and move funds to countries or assets considered safer.
The phenomenon of funds leaving a country is known as capital outflow.
The larger the selling action by foreign investors, the greater the pressure on the IHSG. A study from the IMF (International Monetary Fund) on capital flows and exchange rates shows that share transactions by foreign investors can actually affect exchange rate movements.
Based on a research journal titled ‘The Influence of Inflation, Interest Rates, and the Rupiah Exchange Rate on Stock Returns’, it is underlined that a country’s economic conditions will affect the exchange rate, so exchange rate stability is indeed needed to create a conducive business climate and improve the business world.
If the rupiah weakens while other countries’ currencies strengthen, investors will naturally tend to choose to invest in those other countries.
- Companies’ import costs increase
In fact, many companies in Indonesia still import raw materials, machinery, and production components using US dollars. When the rupiah weakens, the following occurs:
import costs become more expensive;
production costs increase;
company profits can decline if the cost increase cannot be passed on to consumers.
This weakening profit outlook is what often causes share prices to be corrected. Sectors that are relatively sensitive to this condition include:
manufacturing
automotive
pharmaceuticals
electronics.
- Dollar-denominated debt burdens increase
Some issuers have loans in US dollars.
When the USD/IDR exchange rate rises, the principal and interest on debt that must be paid in rupiah also increase. As a result, the company’s financial burden becomes larger and has the potential to pressure net profit.
Investors generally pay attention to this condition because it can affect company performance in the long term.
- Bank Indonesia adjusts monetary policy
If rupiah depreciation is deemed too sharp, Bank Indonesia can take various steps to maintain exchange rate stability, one of which is through interest rate policy.
Higher interest rates can increase the attractiveness of Indonesian financial assets and help attract foreign portfolio investment back. However, on the other hand, borrowing costs for the business world also increase, which can affect economic growth and the stock market.
Not all stock sectors are harmed when the rupiah weakens. Rupiah depreciation can indeed be a negative sentiment for some companies, but there are also issuers that actually benefit.
Stocks that potentially benefit
Companies that earn most of their revenue in US dollars are usually more advantaged because their revenue will be worth more after being converted to rupiah. Examples include several companies in the following sectors:
mining;
oil and gas;
metals such as nickel;
gold;
export-oriented companies.
Stocks that potentially face pressure
Conversely, companies that depend on imports or have large dollar debts tend to face pressure. Examples include the following sectors:
automotive;
airlines;
pharmaceuticals;
electronics;
companies with high foreign-currency debt exposure.
Even so, each issuer has different conditions. Some companies have carried out hedging so that the impact of rupiah depreciation can be minimised.
Does a weakening rupiah always cause the IHSG to fall?
No. Rupiah depreciation can indeed put pressure on the IHSG, but the direction of the index is also influenced by other factors such as commodity prices, interest rates, economic conditions, and issuer performance.
Why do foreign investors often sell shares when the rupiah weakens?
Because rupiah depreciation can reduce the value of investments when converted to their home currency. To reduce currency risk, some investors choose to withdraw funds from the Indonesian stock market and invest them in countries with stable currencies.
Which sectors usually benefit when the rupiah weakens?
Companies that earn revenue in US dollars or are export-oriented. Examples include the mining, energy, and metals sectors, as well as some exporters.
That is the explanation of how rupiah depreciation can indeed put pressure on the IHSG, which in turn also increases investment risk, encourages capital outflows, raises import costs, and enlarges the debt burden of companies using US dollars.
However, a weakening rupiah does not always mean the IHSG will definitely fall. Stock market movements are influenced by many factors, including economic conditions, monetary policy, commodity prices, and the performance of individual issuers. Some sectors can even benefit when the rupiah weakens.
As an investor, when the rupiah weakens as it is now, it does not mean you must immediately sell your entire share portfolio. Remember to stay calm and avoid emotional decisions. Exchange rate fluctuations are part of normal market dynamics.
Always pay attention to company fundamentals. Be smart in choosing issuers that have healthy financial performance, good cash flow, and controlled debt. Do not forget to diversify your portfolio. This means not placing all funds in one sector so that risk can be spread, and focus on long-term investment goals.
Now you can easily invest in shares of sectors that earn most of their revenue in US dollars, so their revenue will be worth more after being converted to rupiah. Examples include the mining sector.
There are many mining shares that do not only focus on coal, but also gold, nickel, copper, and others. Starting from ANTM, TINS, ADRO, and others. These shares can be invested in easily through the InvestasiKu application.
Do not worry, the InvestasiKu application is under the supervision of the Financial Services Authority (OJK). Download InvestasiKu and invest in shares for a better future.