Economist: Rupiah stabilisation still requires large foreign capital inflows into government bonds

The rupiah is essentially waiting for larger capital inflows, according to Trimegah Sekuritas Indonesia Chief Economist Fakhrul Fulvian. He stated that stabilising the rupiah exchange rate currently requires an increase in foreign capital inflows into Government Securities (SBN) to strengthen the balance in the foreign exchange market. To generate sustainable capital inflows, Fakhrul believes the Indonesian bond market needs to offer yields that are sufficiently attractive compared to still-high global risks. He noted that while foreign investors have begun to return to purchasing Indonesian bonds, the process is still in its early stages. Fakhrul assessed that the ongoing rupiah depreciation should be seen as part of the financial market adjustment process, not as a reflection of deteriorating Indonesian economic fundamentals. According to him, Indonesia has now entered a stabilisation phase following various monetary policy adjustments and liquidity management by Bank Indonesia (BI). He also explained that the exchange rate stabilisation process does not happen instantly. In the current situation, the bond market is the most decisive factor for the rupiah’s direction as it is the main entry point for foreign portfolio capital flows. Fakhrul considers BI’s move to tighten liquidity management as the right foundation. However, the success of the stabilisation process also requires fiscal policy consistency and government debt management so that the bond market normalisation process can proceed optimally. He emphasised that coordination between BI and the Ministry of Finance is crucial at this stage. Both institutions need to provide room for bond yields to form at levels that reflect market conditions, so that Indonesia regains competitiveness compared to other emerging market countries. Fakhrul also views that what is needed now is not additional intervention, but policy consistency. When the market sees that the normalisation process is truly being carried out 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. During this process, exchange rate volatility will still be influenced by global developments, especially expectations regarding the policy of the United States central bank, the Federal Reserve. However, from the domestic side, the foundation for stabilisation is beginning to form and the downside for the rupiah is considered increasingly limited compared to several months ago. Therefore, the next challenge is no longer to stop the pressure on the rupiah, but to build investor confidence that the bond market normalisation process will be carried out consistently until Indonesia once again becomes a primary destination for portfolio investment in the region. Fakhrul concluded that when capital inflows strengthen again, the rupiah will obtain much more solid support and the stabilisation process will become more sustainable. On Thursday, the rupiah exchange rate based on the JISDOR benchmark closed at Rp17,994 per US dollar. The 50 basis point BI-Rate hike in May 2026 was the first adjustment after BI maintained the reference rate at 4.75 percent since September 2025. However, the rupiah continued to weaken, briefly breaching the Rp18,000 per US dollar level in early June. Subsequently, through the Weekly BI Board of Governors Meeting on 9 June 2026, BI again raised the BI-Rate by 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 policy tightening by again raising the BI-Rate by 25 bps to 5.75 percent. In line with the BI-Rate increase, BI implemented a policy of strengthening the SRBI interest rate structure across all tenors to continue attracting foreign portfolio investment inflows into domestic financial assets.