Rupiah slide and ‘Sell Indonesia’ stocks: Jakarta’s counter moves useful but experts flag deeper fiscal concerns

JAKARTA, 21 JULY 2026 —

Indonesia’s emergency interest rate hike and efforts to support the rupiah may have helped calm markets for now, but economists say investor confidence will not fully return unless the government addresses deeper concerns. JAKARTA: Indonesia’s latest moves to steady the rupiah and calm the stock market may have helped arrest the immediate slide, but experts say the bigger issue is a lack of investor trust.

Last Saturday, the government also agreed to increase yields on Indonesian assets to attract portfolio inflows and support the rupiah, although details remain scarce. Economists told CNA these steps are unlikely to restore long-term confidence unless the government addresses deeper concerns over fiscal credibility, policy predictability and governance.

The government’s response so far has failed to touch the main source of market anxiety, which is the state budget, said Bhima Yudhistira, executive director of the Center of Economic and Law Studies (CELIOS). The Jakarta Composite Index (JCI) has slumped this year after global index provider MSCI highlighted transparency issues in Indonesian equities in January, which sparked a market rout on fears of a downgrade to "frontier" status .

Bloomberg recently reported that the JCI has fallen 36 per cent from its record high five months ago and is the worst performer this year among more than 90 global gauges tracked. A “Sell Indonesia” narrative has also emerged in recent days among investors to reduce exposure to Indonesia, indicating increasing concern about its policy direction and fiscal outlook.

“In my view, the problem is fiscal,” Bhima said, adding that monetary tightening would have a limited impact on the rupiah as long as the government did not clearly cut unproductive spending . Bhima said the new higher interest rate could instead hurt other sectors, as mortgage rates, consumer credit and working capital loans would also rise.

CNA Games Guess Word Crack the word, one row at a time Buzzword Create words using the given letters Mini Sudoku Tiny puzzle, mighty brain teaser Mini Crossword Small grid, big challenge Word Search Spot as many words as you can Show More Show Less A TEMPORARY SOLUTION The latest rate hike and efforts to raise yields may help support the rupiah in the short term, analysts said, but not in the long term.

A higher rate makes rupiah-denominated assets more attractive to investors because they can earn higher returns by holding Indonesian financial instruments. That can help slow capital outflows and support the currency, said Muhammad Faisal, executive director of Centre Of Reform On Economics (CORE) Indonesia. “We can already see the impact,” said Faisal.

“The rupiah, which had been steadily weakening recently, is now starting to stabilise.” After hitting an all-time low on Monday, the rupiah strengthened to 18,141 on Tuesday and 17,971 on Wednesday. The Indonesian stock exchange has also bounced back from its lowest dip in five years. It traded at 5,902,37 at the end of Wednesday, after reaching its lowest level in five years on Monday at 5,342.14.

However, "for the overall economic improvement, it is certainly not enough with just one or two policies", Faisal said. Since the bigger issue is trust, businesses and investors must believe the government’s policies are heading in the right direction and that there is effective governance, he said. Similarly, Wijayanto Samirin, an economist and public policy expert from Paramadina University, agreed the interest rate move was useful but only as a temporary stabiliser.

He said Bank Indonesia’s decision to raise its benchmark rate to 5.5 per cent was “long-awaited” by money market players because the gap between Indonesian yields and US Treasury yields had become too narrow. The increase, he said, helped strengthen the rupiah. He said boosting yields and preserving financial market liquidity were both important, but also pulled in opposite directions.

Higher yields can support the rupiah, but may reduce liquidity and make life harder for businesses. “The most important thing is to maintain the balance between the two,” he said. Meanwhile, Bhima from CELIOS warned that for households and businesses, a higher benchmark rate can also mean more expensive borrowing. Banks may raise rates on mortgages, consumer loans, credit cards and working capital loans.

That can make it harder for people to buy homes or cars, and for businesses to expand or hire, he said. Amid market pressure, rumours have circulated about whether Finance Minister Purbaya Yudhi Sadewa , who replaced veteran Sri Mulyani Indrawati last September, could be reshuffled.

Analysts said the speculation is newsworthy not only because it concerns a key economic post, but because it reflects what markets are looking for: A figure who can communicate clearly, has credibility with investors and is seen as capable of managing fiscal risks. Once a low-profile technocrat who led a deposit insurance agency, Purbaya came into the job with a can-do attitude, often making what experts deemed as brash remarks and bold fiscal moves.

His predecessor Sri Mulyani was known for her prudent approach to fiscal discipline. He has redirected Indonesia’s “rainy day funds” to stimulate the economy, a move economists have criticised and has yet to pay off. Bhima said Purbaya’s communication style - often challenging criticism - had affected trust and that markets wanted a figure who could calm the situation. Purbaya’s statements have not reassured investors, and finance policies taken so far have not solved the

Related: Jakarta