- The global economy may become more accommodative to Indonesia’s growth as lower policy rates influence commodity prices. Alas, the transmission remains uncertain, given challenges in both the US’ and China’s domestic economy.
- Apart from front-loaded export demand, tariff advantages help to propel Indonesia’s exports in 2025. However, the balance of payment may moderate in 2026, given the improving outlook on aggregate demand and investments.
- The recent upward trend in household consumption and investments may continue in 2026. Even so, the acceleration in GDP growth may remain modest, as the driving factor remains dependent on the government’s programmes and intervention packages, while the fiscal capacity to address structural challenges may become increasingly limited.
- The expansive spending budget necessitates higher debt issuance, which may feed into Bank Indonesia’s consideration to maintain its dovish policy signals. However, the benchmark SBN yield may settle higher relative to the level seen in 2025, given the uncertain outlook on foreign and domestic demand for SBN.
- The moderating balance of payment position and narrowing rate spread underscore the lack of improvement in the Rupiah’s fundamentals, potentially posing the currency to episodic pressures that may limit BI’s policy flexibility.
