JAKARTA - The Head of Economics at Trimegah Securities Indonesia, Fakhrul Fulvian, assessed that the weakening of the rupiah is currently entering the overshooting phase, which is a condition when the depreciation of the exchange rate moves deeper than is justified by the fundamentals of the Indonesian economy.
According to Fakhrul, the pressure on the rupiah does not merely reflect the weakness of domestic economic fundamentals, but is influenced by a combination of global factors, domestic policy directions, and uncertainty in the economic adjustment process.
"Financial markets do not only read today's data. Markets read policy direction, the credibility of the response, and the ability of the country to maintain stability in the midst of very rapid global changes," he said in a written statement, Thursday, May 28, 2026.
He explained that the rupiah is currently the main shock absorber due to various economic pressures that should be spread to other sectors.
According to him, when the government holds back on adjusting energy prices and keeps inflation low for social stability and people's purchasing power, economic pressure shifts to the foreign exchange market.
"Inflation is contained, energy prices are contained, but the economic pressure is not gone, the pressure is moving to the exchange rate," he said.
Fakhrul assessed that the condition was in line with the Dornbusch Overshooting theory, where the exchange rate moves much more extreme when domestic prices are rigid while the financial market reacts quickly to global pressures.
However, he emphasized that Indonesia's economic fundamentals are still relatively good compared to many other developing countries.
Fakhrul gave examples such as inflation which is still under control, a healthy banking sector, and economic growth remains positive. However, the market now highlights Indonesia's policy anchor strength in the face of an increasingly volatile global era.
Externally, pressure on the rupiah is triggered by the strengthening of the US dollar, high US Treasury yields, geopolitical tensions, and fragmentation of global trade. Meanwhile, from within the country, the market sees an imbalance between fiscal and monetary policies.
Fakhrul assessed that the Bank Indonesia (BI) move to raise the benchmark interest rate by 50 basis points was an important effort to maintain the credibility of policy and exchange rate stability.
"BI is starting to return to the pre-emptive, front loading, and ahead of the curve approach of the 2018 era," he said.
However, he emphasized that the stabilization of the rupiah could not be solely imposed on BI, but a balanced policy mix between monetary and fiscal policies was needed so that pressure on the rupiah would not continue.
"The market wants to see a more balanced burden sharing. Don't let all the pressure be borne by the rupiah and BI," he said.
Fakhrul also reminded that the impact of the weakening rupiah and high bond yields began to burden the real sector such as the manufacturing industry, property, construction, and sectors with import dependence were assessed to face heavy pressure due to simultaneous increases in production and financing costs.
According to him, if this condition lasts too long, companies have the potential to hold back expansion, reduce investment, and slow down labor recruitment.
However, Fakhrul still sees opportunities for the rupiah to strengthen in the future if the coordination of fiscal and monetary policies improves and the market sees a clear and credible stabilization roadmap.
"The current level of the rupiah is too weak compared to the actual capacity of the Indonesian economy," he concluded.
The English, Chinese, Japanese, Arabic, and French versions are automatically generated by the AI. So there may still be inaccuracies in translating, please always see Indonesian as our main language. (system supported by DigitalSiber.id)
