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SHIFT IN NARRATIVE
After a rough first half of the year, the narrative around Indonesia’s economy has turned relatively constructive. The macro outlook is on the mend, and policy coherence has strengthened. Recent budget developments have reduced the likelihood of an outright fiscal slippage. A more disciplined fiscal trajectory should also provide room for monetary policy to stay focused on its price stability mandate rather than on addressing financial stability risks due to fiscal concerns.
NEAR-TERM FISCAL WORRIES RECEDE
Fiscal fears have moderated in the near term. New Finance Minister Suahasil Nazara reaffirmed the government’s commitment to maintain the annual deficit below -3% of GDP threshold. The 2026 run-rate suggests that the deficit is likely to close within the budgeted target.
2027 math signals fiscal prudence, soft spots warrant attention
The official goalposts for 2027 point to a continued preference for fiscal prudence rather than fiscal activism. We maintain our deficit forecasts to account for any revenue shortfall or a gradual pace of growth. Nonetheless, deficits/debt are likely to stay below key thresholds and not emerge as a flashpoint for the markets.
MONETARY POLICY ON AN EVEN KEEL
Policymakers are likely to tap a combination of administrative and macroprudential measures rather than solely interest rates to defend the currency as well as keep inflationary expectations in check.
IN SUMMARY
IDR markets have been relatively steady in October despite higher oil prices and a bid dollar, though sentiment remains sensitive to external developments and swings in global risk appetite. USDIDR traded within 17600-18000, while 10Y yield hovered around 7.15-7.25%.
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