The Indonesian equity market in December 2024 remained under pressure from the weakening exchange rate. The Rupiah depreciated by 2%, reaching Rp 16,150/USD from Rp 15,850/USD in the previous month. However, for the entire year, the Rupiah only depreciated by 5%, supported by a stable trade surplus. The strength of the U.S. dollar, reflected in the DXY index rising to 108 in December from 100 in September, was driven by shifts in U.S. monetary policy and expectations for the U.S. economy. The Federal Reserve indicated that the pace of rate cuts in 2025 might not match the faster pace seen in 2024. The U.S. economy is experiencing a soft landing, a phase of the slowdown cycle characterized by stable job market and inflation conditions.

However, with the implementation of new policies under President Trump, the U.S. economy could strengthen further, increasing the risk of inflationary pressures. In response, the Federal Reserve revised its median forecasts for PCE inflation to 2.5%–2.7%, up from the earlier projection of 2.1%–2.3%. Consequently, the Fed is now expected to cut interest rates in 2025 only twice (50 bps) instead of four times (100 bps) in 2025.

The domestic equity market showed signs of losing momentum due to these global developments. A strong DXY index may continue to weigh on Indonesian equities. However, as Trump’s policies become clearer and better understood after his inauguration, global markets might shift focus toward diversifying portfolios into emerging markets, including Indonesia. We believe investors should anticipate volatility by maintaining diversified portfolios and avoiding overconcentration in specific asset classes.