IHSG Plunges Amid Rupiah Weakness: Global Pressures Hit Indonesia

Indonesia’s financial markets are facing mounting challenges, with the Composite Stock Price Index (IHSG) posting sharp declines in recent sessions and the U.S. dollar strengthening against the rupiah.

This trend reflects a mix of intense global pressures, a global investor shift toward dollar-denominated assets, and ongoing adjustments in domestic fundamentals.

The IHSG has come under heavy selling pressure lately due to negative sentiment from both home and abroad. Market analysts note the benchmark index hit lows not seen in some time, signaling investors reallocating to lower-risk instruments.

Meanwhile, the rupiah faces depreciation strain against the dollar, nearing its weakest levels in months, with figures showing a steady slide since early January 2026.

Media reports tie this to global market dynamics, where capital outflows from emerging markets are sparking sell-offs in high-risk assets like local stocks and bonds, while safe-haven flows bolster the dollar.

This is reinforced by data showing significant net selling by foreigners in Indonesia’s bond market, adding to domestic market strain and rupiah weakness.

A key fundamental driver of pressure on the IHSG and rupiah is uncertainty over global monetary policy, especially in the U.S., which tilts the appeal toward dollar assets over those in emerging markets.

When U.S. interest rate outlooks stay high or signal tightening, returns on U.S. bonds look more attractive than yields in places like Indonesia. As a result, global capital flees Indonesian stocks and rupiah assets, hammering the IHSG and weakening the currency.

Even as Bank Indonesia holds its policy rate steady at 4.75% on the 7-day reverse repo in recent moves to back currency stability and growth, it signals limited room for further hikes amid efforts to sustain economic momentum.

Investor Confidence at Risk

Pressure also stems from perceptions of Indonesia’s investment appeal. The Financial Times reported global institutions warning that unresolved structural issues could deter foreign interest in Indonesian stocks.

The episode fueled IHSG volatility, marked by steep drops in certain trading days and fears of prolongation without clear policy responses.

On top of that, hefty net outflows from foreign investors in bonds indicate that even competitive domestic yields can’t counter global risks pushing reallocations to more liquid, safer assets.

The IHSG’s correction over the past few days mirrors shaken market sentiment. Short-term investors react swiftly to bad news—like global worries and currency moves—triggering sell-offs.

The link between stock markets and exchange rates, while not always tight, highlights how external risks such as rising U.S. Treasury yields or index provider warnings can spark sharp domestic index corrections.

The dollar’s gain against the rupiah signals a flight to quality, with global capital chasing lower-risk assets amid lingering U.S. rate hike expectations or geopolitical tensions. The rupiah’s slide follows logically, amplified by outflows boosting dollar demand and squeezing local forex supply.

Latest data shows the rupiah under sustained pressure through early January 2026 days.

Bank Indonesia must keep its monetary policy credible and responsive to global shifts without sacrificing price stability or growth.

Its recent decision to hold rates reflects a balance between attracting local assets and curbing depreciation. But clear communication on policy paths and domestic conditions is key to easing market volatility.

To boost investability, authorities need coordinated steps from capital market regulators to improve transparency, corporate governance, and trading infrastructure.

That would shore up trust from foreign and domestic capital alike, fostering steadier inflows.

Market players and forex traders should eye portfolio diversification—spreading across asset classes and currencies—while sticking to disciplined risk management.

Deep insight into macro fundamentals and global indicators will guide rational choices in volatile times.

The IHSG pullback and dollar surge against the rupiah lately embody interconnected global market forces and short-term risk signals.

Players should view this pressure as a market cycle phase demanding analytical, adaptive, and informed responses in investment strategies and risk hedging.

Meanwhile, monetary-fiscal coordination and structural market fixes remain essential for bolstering Indonesia’s capital markets against shifting global turbulence.

*) Prof. Dr. Ir. Perdana Wahyu Santosa, MM, CRP, CSA, Professor of Economics, Dean of FEB at Universitas YARSI, and Director of Research at GREAT Institute

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