Economist Reveals Rupiah Stability as the Key to Foreign Investment Entry

JAKARTA - The weakening of the rupiah exchange rate coupled with high volatility is considered to have the potential to hold investment flows into Indonesia.

This condition makes investors, especially foreign investors, tend to take a wait-and-see attitude amid increasing economic and financial market uncertainty.

Head of Permata Bank's Economist, Josua Pardede, said the stability of the rupiah was one of the main factors considered by investors in making investment decisions because it was directly related to exchange rate risk and capital flows.

"If the rupiah condition is not stable, the question is whether the investment will run? Everything will wait and see, especially foreign investment," he said in a Journalist Training in Makassar, quoted Sunday, May 24.

According to him, Bank Indonesia's steps in maintaining rupiah stability are not in conflict with efforts to encourage economic growth, and in fact, exchange rate stability is needed so that business actors have certainty to expand and invest in the long term.

Josua assessed that the cautious attitude of the business world began to be seen from the still high position of undisbursed loans or loans that have been approved by the bank but have not been disbursed by the debtor.

He explained that this condition reflects that business actors are still delaying expansion due to economic uncertainty and rupiah fluctuations.

"Banks have approved loans, but the debtors have not used them. This means that business actors are still hesitant to expand, add factories, or buy machines," he said.

Based on Bank Indonesia data, the ratio of undisbursed loans to credit ceilings is still quite high in a number of sectors, namely several sectors with ratios higher than the historical average for the period 2021-2025, namely agriculture, business services, construction, and transportation. In general, the ratio of credit that has not been withdrawn is still above 20 percent of the total credit ceiling.

Josua emphasized that the high undisbursed loan was not caused by banks holding liquidity. He assessed that the current banking liquidity condition is still relatively loose, but credit demand has not fully recovered due to high risks and business uncertainties.

On the other hand, he assessed that the increase in the benchmark interest rate by Bank Indonesia was a pre-emptive step to maintain the stability of the rupiah while controlling inflation expectations.

According to Josua, the policy is important to mitigate the impact of imported inflation due to the weakening of the rupiah and rising global prices amid the heating of geopolitical conflicts in the Middle East.

"This is a pre-emptive step to limit the impact of import inflation and anchor inflation expectations," he said.

He estimates that the pressure on the rupiah due to the increased need for US dollars for dividend payments and the hajj season could potentially begin to ease in the third quarter of 2026.

However, Josua said that global uncertainties triggered by conflicts in the Middle East are still a risk factor for the stability of the domestic financial market as well as foreign investment flows into Indonesia.