Economist: Rupiah stabilisation still requires large foreign capital inflows into government bonds
The rupiah is essentially awaiting larger capital inflows, according to Fakhrul Fulvian, Chief Economist at Trimegah Sekuritas Indonesia. He believes that stabilising the exchange rate currently requires an increase in foreign capital inflows into Government Securities (SBN) to strengthen the balance in the foreign exchange market.
“The rupiah is essentially waiting for larger capital inflows,” Fakhrul stated in Jakarta on Thursday.
To generate sustainable capital inflows, Fulvian believes the Indonesian bond market needs to offer sufficiently attractive yields compared to the still-high global risks. “Foreign investors have indeed begun to return to buying Indonesian bonds, but in my view, this process is still in its early stages,” he added.
Fulvian assesses that the current weakening of the rupiah should be viewed as part of a financial market adjustment process, rather than a reflection of deteriorating Indonesian economic fundamentals. He noted that Indonesia has entered a stabilisation phase following various monetary policy adjustments and liquidity management measures implemented by Bank Indonesia (BI).
He further explained that the exchange rate stabilisation process does not happen instantly. In the current climate, the bond market is the most decisive factor for the rupiah’s direction, as it serves as the primary gateway for foreign portfolio capital inflows.
Fulvian considers Bank Indonesia’s steps to tighten liquidity management to be a proper foundation. However, the success of this stabilisation process also requires consistent fiscal policy and the management of government debt to ensure the normalisation of the bond market can proceed optimally.
According to him, coordination between Bank Indonesia and the Ministry of Finance is crucial at this stage. Both institutions need to allow for the formation of bond yields that reflect market conditions so that Indonesia regains its competitiveness compared to other emerging markets.
Fulvian also believes that what is needed now is not additional intervention, but policy consistency. “When the market sees that the normalisation process is being implemented consistently by Bank Indonesia and the Ministry of Finance, investor confidence will increase, capital inflows will grow larger, and the rupiah will gain a much stronger foundation,” he added.
While this process unfolds, Fulvian noted that exchange rate volatility will still be influenced by global developments, particularly expectations regarding the United States Federal Reserve’s policies. However, from a domestic perspective, he noted that the foundation for stabilisation is forming, and the downside risks for the rupiah appear more limited compared to several months ago.
Therefore, he believes the next challenge is no longer stopping the pressure on the rupiah, but building investor confidence that the bond market normalisation process will be carried out consistently until Indonesia returns as a primary destination for portfolio investment in the region.
“When capital inflows strengthen again, the rupiah will receive much more robust support and the stabilisation process will become more sustainable,” he said.
On Thursday (2/7), the rupiah exchange rate based on the JISDOR rate closed at Rp17,994 per US dollar.
The 50 basis point (bps) increase in the BI-Rate in May 2026 was the first adjustment after BI had maintained the benchmark rate at 4.75 per cent since September 2025. However, the rupiah continued to weaken, briefly breaching the Rp18,000 per US dollar level in early June.
Subsequently, through the BI Weekly Board of Governors Meeting on 9 June 2026, BI raised the BI-Rate by another 25 bps. Since that decision, the rupiah has gradually moved back below the Rp18,000 per US dollar level.
At the Monthly Board of Governors Meeting on 18 June 2026, BI continued its monetary tightening by raising the BI-Rate by another 25 bps to 5.75 per cent.
In line with the BI-Rate increase, BI is implementing policies to strengthen the SRBI interest rate structure across all tenors to ensure foreign portfolio investment inflows into domestic financial assets remain attractive.