Economists say Rupiah is key to foreign fund flows into stock market

Head of Research and Chief Economist at PT Mirae Asset Sekuritas Indonesia, Rully Arya Wisnubroto, stated that the stability of the Rupiah exchange rate is a key factor in rekindling foreign investors’ interest in the Indonesian stock market. “As long as Rupiah volatility remains high, global investors will tend to remain cautious in increasing their exposure to Rupiah-denominated assets. Exchange rate stabilisation will be an important prerequisite for seeing a more sustainable reversal of foreign fund flows,” Rully said in an official statement in Jakarta on Wednesday. Rully explained that the current strengthening of the Composite Stock Price Index (IHSG) is still aligned with global sentiment and does not yet reflect significant fundamental changes. Although the latest macroeconomic data shows better performance than expected, including Indonesia’s economic growth of 5.61% year-on-year in the first quarter of 2026. “It is still too early to assume that this strengthening will continue, given that foreign fund flows are still recording outflows and there is no sufficiently strong new catalyst to change the market direction,” Rully said. Research Analyst at Mirae Asset Sekuritas Indonesia, Novani Karina Saputri, explained that Indonesia’s economic growth in the first quarter of 2026 was strongly supported by government spending and household consumption during the Ramadan and Eid period. “The 5.61% growth (year-on-year) was supported by an acceleration in government spending that increased significantly to around 21.8% (year-on-year), as well as solid domestic consumption. The frontloading fiscal stimulus strategy also provided a boost to economic activity at the start of the year,” Novani said. On the other hand, she continued, on a quarterly basis, the economy is still experiencing a contraction of around 0.8% quarter-on-quarter, indicating seasonal factors. “We see growth potentially normalising in subsequent quarters as the Ramadan and Eid effects subside, and the impact of fiscal frontloading diminishes,” Novani said. From abroad, she said that pressure is starting to appear through slowing exports and stronger import growth, as well as contraction in the mining sector due to weakening global commodity prices. Looking ahead, she predicts that Bank Indonesia (BI) will continue to maintain the benchmark interest rate at 4.75% throughout 2026, in line with relatively controlled inflation and still solid growth. However, she cautioned that risks remain, particularly if pressure on the Rupiah continues and oil prices remain high, which could push for tighter monetary policy. “The market will monitor several key catalysts ahead, including the results of the MSCI Market Accessibility Review in June 2026 and the consistency of Rupiah exchange rate stabilisation policies,” Novani said. Trading data on Wednesday (06/05) at 14:35 WIB showed the IHSG strengthening by 30.45 points or 0.43% to 7,087.55. Meanwhile, at the same time, the Rupiah exchange rate was at 17,415 per US dollar. Meanwhile, foreign investors still recorded a net sell of Rp518.39 billion across the market on Tuesday’s trading (05/05).