Rahmat Hidayat – Indonesia's financial markets staged a sharp recovery during the week of June 8-12, 2026, after enduring nearly six months of heavy pressure, but investors have yet to fully restore confidence in Southeast Asia's largest economy, according to political economy analyst Kusfiardi.
Indonesia's benchmark Jakarta Composite Index (IHSG) gained 7.38% during the week and climbed back above the 6,000 level, while the rupiah strengthened from around Rp18,000 per U.S. dollar to a range of Rp17,780-Rp17,920.
The rebound followed an unexpected off-cycle monetary policy decision by Indonesia's central bank, which raised its benchmark BI Rate by 25 basis points to 5.50% on Tuesday, June 9, 2026.
"The market's performance this week shows that investors responded positively to a decisive policy signal. However, the strengthening of the IHSG and the rupiah does not automatically mean investor confidence has fully recovered," said Kusfiardi, Political Economy Analyst and Co-Founder of FINE Institute.
According to Kusfiardi, Bank Indonesia's interest rate increase, adjustments to its Rupiah Securities instrument known as SRBI, foreign exchange market intervention, and other stabilization measures succeeded in halting a selloff that had pushed Indonesian equities to their lowest levels in five years.
Market data showed total market capitalization rising to Rp10,524 trillion ($644 billion), while yields on Indonesia's 10-year government bonds declined to around 7.17%. Meanwhile, SRBI instruments and government bonds recorded capital inflows of approximately Rp19 trillion ($1.16 billion) after the central bank's announcement.
Despite the recovery, Kusfiardi cautioned that investors continue to reassess Indonesia's broader risk profile.
"The current situation indicates that the market is no longer merely correcting the exchange rate or stock prices. Investors are reassessing the credibility of policy responses when financial market stress reaches critical levels," he said.
One key indicator, he noted, remains foreign investor behavior. Although markets rebounded strongly during the week, overseas investors still recorded net sales of approximately Rp67.3 trillion ($4.12 billion) year-to-date.
"Foreign capital flows throughout the year indicate that global investors have not fully changed their perception of Indonesia's risk profile. The market is giving Indonesia a second chance, but it has not delivered a final verdict," Kusfiardi said.
He argued that public attention has focused heavily on the central bank's success in stabilizing the currency and equity market, while the economic costs associated with tighter monetary policy have received less scrutiny.
"Higher interest rates help attract capital inflows and strengthen the rupiah. But that stability is not free. Businesses may face higher financing costs over the coming quarters," he said.
Kusfiardi added that the recent recovery remains largely driven by short-term stabilization tools rather than structural improvements addressing the underlying vulnerabilities that triggered the earlier market decline.
"There has been no significant change in the depth of Indonesia's domestic financial markets, dependence on foreign capital, or the concentrated ownership structure of listed equities. What has changed for now is sentiment, not structure," he said.
The analyst said recent developments underscore the importance of institutional credibility in maintaining financial stability. In political economy terms, markets tend to react quickly to the perceived ability of institutions to manage risk and uncertainty.
"When markets questioned policy direction, both the IHSG and the rupiah came under severe pressure. When Bank Indonesia demonstrated its capacity to act quickly and decisively, sentiment improved. This shows that confidence in institutions remains a key determinant of market stability," Kusfiardi said.
He warned that volatility risks have not disappeared entirely, citing global uncertainty, potential shifts in international capital flows, geopolitical developments, and continued investor assessments of Indonesia's monetary policy effectiveness.
According to Kusfiardi, the challenge facing policymakers has shifted from stopping market declines to ensuring that the current recovery becomes sustainable.
"The market is not testing whether Indonesia can create a short-term rebound. The market is testing whether Indonesia can transform temporary stability into lasting confidence. The country's biggest challenge is not merely keeping the IHSG in positive territory or maintaining a stable rupiah, but building a deeper, more credible, and more resilient financial market capable of withstanding global sentiment shifts," he said.