May 08, 2025

Eyes on the Rupiah

Market Commentary

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Amid the relentless wave of global sentiment that often unsettles market participants, we see significant room for the rupiah to strengthen in the coming months.

This conviction is not mere empty optimism but is grounded in a combination of increasingly solid fundamental factors.

Indonesia has demonstrated remarkable consistency in maintaining a trade surplus.

In March, Indonesia posted its highest trade surplus in the past four months, surging to USD 4.33 bn from USD 3.12 bn in February.

Even more compelling is the resurgence of the domestic food sector.

Over the past year, Prabowo’s free meal program has triggered a surge in corn and rice production.

Ideal rainfall has helped food estates across various regions achieve their best harvests in the past five years.

According to the Corn Area Sample Survey for February 2025 released by BPS in April 2025, corn production (dried corn cobs) reached 9,032,262 tons, marking a 48.47% increase compared to the same period last year, which recorded just 6,083,506 tons.

This is a positive signal that Indonesia is becoming increasingly self-sufficient in food production, which in turn can help suppress rice prices and ease food inflation.

When rice prices are well controlled, household purchasing power structurally improves, providing an additional catalyst for macroeconomic stability.

Digging deeper, however, the core issue lies not in Indonesia’s economic fundamentals, which are inherently robust, but rather in liquidity constraints.

Many Indonesian companies boast strong operational performance, healthy balance sheets, and promising growth outlooks.

Unfortunately, tight liquidity in the money market has prevented these strong fundamentals from fully translating into financial market performance.

This is where our optimism hinges on two key initiatives: Danantara and DHE, both expected to gradually strengthen foreign exchange inflows and improve domestic liquidity.

It is true that consumer spending has softened over the past few months.

However, we view this as a transitional phase. With rice production expected to continue improving and basic commodity prices beginning to ease, purchasing power is likely to recover gradually.

Of course, we cannot ignore that the rupiah briefly touched IDR 16,500/USD due to escalating geopolitical tensions in South Asia.

Yet, we see opportunity in this situation.

As commodity prices rise and Indonesia, being a leading exporter, reaps the benefits, the pressure on the rupiah is actually lighter than it appears on the surface.

With solid foreign exchange reserves and a measured policy response from Bank Indonesia, we remain confident that the rupiah has room for a sustainable rebound.

We project the rupiah to trade steadily and potentially strengthen back to the IDR 15,500–16,000 range in the coming months, assuming no major unexpected escalations in global geopolitics.

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May 08, 2025

May 08, 2025

May 07, 2025