What's Next for Indonesia's Financial Markets in H2 2026?

TEMPO.CO, Jakarta - PT Samuel Sekuritas Indonesia unveiled a series of challenges in the Indonesian financial market in the second semester of 2026. Investors are concerned about the weakening rupiah, Bank Indonesia's increased benchmark interest rate, and the direction of government policies.

Managing Director of PT Samuel Tumbuh Bersama, Tae Yong Shim, explained the obstacles that will arise. "Entering the second half of 2026, the market is still overshadowed by a combination of rupiah pressure, rising yields, and policy uncertainties," said Shim in a Media Connect presentation by Samuel Sekuritas Indonesia in Jakarta on Friday, July 3, 2026.

Meanwhile, the yield on 10-year government bonds has increased by 108 basis points, rising from 6.05 percent to 7.13 percent year-to-date. At the same time, Bank Indonesia raised its benchmark interest rate — also known as the BI rate — by 100 basis points to 5.75 percent, indicating Indonesia's entry into a cycle of interest rate hikes.

According to Shim, the Central Bank is currently focusing more on stabilizing the rupiah. The current increase in the benchmark interest rate is done to maintain the attractiveness of the weakening exchange rate. "However, the consequence is that economic growth potentially remains restrained. This has become the main dilemma for the market, as stability needs to be maintained, but the growth space becomes more limited," he said.

PT Samuel Tumbuh Bersama noted that the rupiah has weakened from 16,690 per US dollar to 17,882 per US dollar, a decline of about 7.1 percent compared to the beginning of the year or year to date (YTD). The impact of the interest rate hike on the rupiah resembles the conditions seen in 2018.

Shim explained that from April to November 2018, the BI rate had increased from 4.25 percent to 6 percent, leading to the depreciation of the rupiah from 13,913 per US dollar to 15,238 per US dollar. In 2026, the BI rate increased from 4.75 percent in March to 5.75 percent in June. During the same period, the exchange rate of the rupiah moved from 16,995 to 17,848 per US dollar.

Meanwhile, the Jakarta Composite Index (JCI) has declined from 7,048 to 5,821. "The main issue is not only the increase in interest rates, but also the reasons behind the increase. When the market perceives that the interest rate hike is done to sacrifice growth for stability, investors will become more cautious about risky assets," said Shim.

From a policy perspective, he highlighted the fiscal pressure and the increasing state budget deficit. Shim considered the policy increasingly reactive with limited discipline, as well as having an inadequate political and administrative system of checks and balances.

Meanwhile, Prasetya Gunadi assessed that the banking sector still shows relatively resilient performance. "However, investors need to look further into the second half of this year, as the pressure from high interest rates, rupiah depreciation, and potential credit cost increases continue to be challenges for the banking sector," he said.

High interest rates can increase the cost of bank funds, also known as the cost of funds. Samuel Sekuritas Indonesia has downwardly revised the projected aggregate profit growth for the banking sector in 2026 to 1.8 percent from the previous 4.6 percent, due to margin pressure and credit costs.

He believes that there is still room for profit growth, particularly among banks that can maintain interest and non-interest income. "However, the main challenge ahead is how banks will maintain their margins, manage fund costs, and preserve asset quality amid tighter macro conditions," said Prasetya.

Read: JCI and Rupiah End Week Higher, What Drove the Gains?

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