During the first five months of 2026, the Indonesian rupiah weakened by approximately seven percent against the US dollar, trading in the range of IDR 17,800–17,900 per US dollar. During the same period, the Jakarta Composite Index (JCI/IHSG) declined by nearly 30 percent from its opening level of 8,748 at the beginning of the year. Foreign investors also recorded net sales of approximately IDR 54 trillion in the stock market. These two separate indicators conveyed the same message: market confidence was weakening.
At first glance, the pressure on the rupiah and the stock market can be explained by external factors. The conflict in the Middle East has pushed global oil prices above USD 105 per barrel. Disruptions in the Strait of Hormuz have increased pressure on energy-importing countries, including Indonesia. At the same time, persistently high US interest rates have made dollar-denominated assets more attractive than assets in emerging markets. These developments have undoubtedly affected Indonesia’s financial markets.
However, external factors alone do not fully explain the situation. Indonesia’s economy grew by 5.61 percent in the first quarter of 2026, marking the strongest first-quarter performance in thirteen years. Household consumption remained resilient, and government programs continued to operate as planned. This raises an important question: why did financial markets react negatively when several key economic indicators remained relatively strong?
According to the analysis, the central issue is not merely economic data but confidence itself. In modern economies, confidence serves as the foundation for investment and business decisions. When confidence weakens, investors become more cautious, reduce exposure to risk, and seek safer assets. Confidence is not built through statements alone but through policy consistency and clarity of economic direction.
Market participants have observed several factors affecting that perception. The exchange-rate assumption in the 2026 State Budget was set at IDR 16,500 per US dollar, while market rates have moved significantly beyond that level. At the same time, the fiscal deficit in the first quarter increased compared with the same period a year earlier. The trade surplus also narrowed to its lowest level in several years. These developments have raised questions regarding economic resilience and the effectiveness of existing policy measures.
In such circumstances, monetary policy alone is considered insufficient. Bank Indonesia’s decision to raise the benchmark interest rate by 50 basis points demonstrated a strong response to market pressures. However, the continued decline of the stock market following the decision suggested that restoring confidence requires more than interest-rate adjustments. Markets are looking for policy consistency, reform certainty, and concrete actions that reinforce confidence in Indonesia’s economic outlook.
At the same time, global pressures remain significant. Geopolitical tensions, elevated energy prices, and uncertainty surrounding global monetary policy continue to influence capital flows and investor sentiment. Nevertheless, experience shows that countries with stronger levels of confidence are generally better positioned to withstand external shocks than countries facing doubts about their policy direction.
Ultimately, the weakening rupiah and the decline of the Jakarta Composite Index are not separate issues. Both are manifestations of a single challenge: confidence is being tested. As a result, efforts to restore stability require not only financial market interventions but also stronger economic policy credibility through consistent, measurable, and sustainable actions.
Sources: SINDOnews – The Rupiah, the Jakarta Composite Index, and the Crisis of Confidence
