What happened

Bank Indonesia (BI) decided to keep its benchmark interest rate unchanged at 5.75% during its April 2025 meeting, in line with market expectations. The deposit and lending facility rates were also held at 5.00% and 6.50%, respectively. This steady hand underscores BI’s commitment to anchoring inflation within its 2.5% ±1% target and maintaining exchange rate stability amidst a turbulent geopolitical landscape. BI is also continuing its use of market-friendly instruments like SRBI, SVBI, and SUVBI, along with ‘open market operations’ (i.e. buying up the Rupiah) to manage volatility and support the rupiah.

How does this impact the markets?

This move is widely seen as a prudent response to recent pressures on the rupiah, which has weakened 1.84% MoM to Rp16,865/USD, largely due to external uncertainties and mixed domestic economic signals. By holding interest rates, BI is walking a tightrope—balancing inflation control with a clear intent to avoid spooking markets or triggering capital outflows. A phased strategy involving a USD 4 billion intervention is being considered to stabilize the exchange rate closer to the IDR 16,500–16,600 range.

Understanding the Flow: Domestic Strength vs. Foreign Flight

A key dynamic that continues to shape market sentiment is capital flows. Since the start of the year, foreign investors have pulled out roughly USD 2.1 billion from Indonesia’s equity market, compared to a more modest USD 600 million from the bond market. This reflects a broader risk-off sentiment amid global uncertainty, including concerns over U.S. trade policy under Trump.

Recently, domestic investors have been buying both in the equity and bond markets, driving market resilience in Indonesia. Robust local liquidity, particularly from institutional investors such as pension funds and insurers, has played a vital role in maintaining momentum. We're also seeing listed companies executing share buybacks, further supporting prices. Another potential catalyst is Danantara, Indonesia’s sovereign wealth fund, holding significant reserves. Market participants are watching closely for its possible entry into public equities. We expect this domestic-led buying trend to continue into the first half of the year, as foreign investors remain on the sidelines, awaiting clarity on the global trade outlook.

Simpan Views

BI’s approach: Staying Cautious

Looking ahead, BI is likely to stay cautious and data-driven, especially with global interest rates expected to stay elevated and geopolitical tensions adding uncertainty. If domestic inflation remains under control and growth indicators soften, BI may consider a rate cut of 25 bps in 2H25, but only if the Fed signals a dovish pivot first, to avoid renewed capital flight. On the flip side, if the rupiah faces sharper pressures, a rate hike might even be back on the table to defend the currency and preserve macroeconomic stability. All in all, BI’s current stance sends a clear message: flexibility with vigilance, ready to respond to shifting tides.

What are we doing and What Should You Do?

In managing our equity portfolios, we’ve been tactically adding momentum-driven names that are benefitting from strong domestic investor inflows, while maintaining core positions in select blue-chip stocks, including Indonesia’s big four banks. This strategy not only aligns with current market dynamics but also positions us well for a potential rebound in foreign investor participation in Indonesian equities.

On the fixed-income side, our positioning remains largely unchanged. Given the heightened volatility in U.S. Treasury markets, particularly in light of ongoing trade tensions under the Trump administration, we continue to favor short-duration bonds to help mitigate risk while preserving flexibility.

For our current investors, our Dollar-Cost Averaging (DCA) strategy remains a cornerstone of long-term performance. We also continue to see strong potential in our Sustainable Equity Fund, especially with Indonesian equities still trading at attractive valuations. For those looking to build or grow their exposure, this could be an opportune moment to do so with a long-term lens.