Foreign investors remain wary of Indonesia’s policy direction despite efforts to stabilize the rupiah.
Indonesia’s bond sell-off deepened despite an emergency interest rate hike by Bank Indonesia (BI), with investors continuing to question the country’s policy direction and fiscal outlook under President Prabowo Subianto.
Bloomberg data showed Indonesia’s benchmark 10-year government bond yield jumped 23 basis points to 7.51 percent, its highest level since November 2022. Five-year yields rose to levels last seen in May 2020, reflecting continued selling pressure.
The rise in yields came as investors cut exposure to Indonesian assets amid concerns over government intervention in the economy and higher state spending.
Currency and stocks recover, bonds do not
The central bank’s move helped stabilize the rupiah and equities. The rupiah gained 0.71 percent to Rp18,058 per US dollar after earlier hitting a record low, while the Jakarta Composite Index (JCI) rose 7.57 percent to 5,746.
Government bonds, however, remained under pressure as foreign investors stayed on the sidelines.
“The interest rate hike signals to investors that Indonesia is trying to curb the currency sell-off, but it will not be enough to overcome concerns over economic management,” said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken in Singapore.
She said investors would need stronger evidence that structural concerns are being addressed before confidence returns.
Global funds remain cautious
Despite higher yields, major global asset managers remain reluctant to increase exposure to Indonesia.
Ninety One, Robeco Group and Aberdeen have maintained a cautious stance, citing concerns over the country’s investment outlook.
“Indonesia is not a place where we want to allocate capital from a long-term perspective,” said Thys Louw, a portfolio manager at Ninety One.
Authorities seek to restore confidence
Bank Indonesia said it is coordinating with the government to improve returns on government bonds and attract foreign capital. The central bank has also been buying government bonds in the secondary market to support the rupiah.
The sell-off intensified in recent days amid scrutiny of the central bank by policymakers, a corruption investigation and new commodity export regulations, adding to investor concerns over policy consistency and institutional independence.
“There needs to be a bit further downside before we look at Indonesian bonds in a more constructive way,” said Philip McNicholas, Asian sovereign strategist at Robeco.
The comments highlight the challenge facing policymakers as they seek to restore investor confidence and stabilize financial markets.