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■ Recent IDR depreciation and Bank Indonesia’s decision to hold the BI-Rate at 5.75% highlight limited policy flexibility: Marking a third consecutive hold following cumulative 100-bps tightening delivered in May and June 2026, Indonesia's central bank maintained the BI Rate at 5.75% during its September meeting, resulting in c. 2.3% IDR depreciation since 9 September when the IDR displayed its utmost strength recently against the USD having reached 17,501. Given the new BI Governor's mandate to support economic growth, the decision was broadly in line with market expectations, although more dovish than SSI’s forecast of 25-bps rate hike. While BI also kept Deposit Facility and Lending Facility rates unchanged at 4.75% and 6.50%, respectively, we believe BI remains cautious as both external risks and domestic uncertainties continue to limit lower rates. We also note that the weak IDR is not supportive of Indonesia’s economic growth given our heavy reliance on imported raw materials, energy, and capital goods.
■ Stronger policy coordination has yet to translate into clearer domestic economic support while External conditions remain near-term downside risks: Discussions among the Finance Ministry, BI, OJK, Danantara, and DPR signal closer coordination, but their effectiveness remains uncertain. Liquidity support may have limited impact if weak purchasing power and cautious private-sector demand persist. Further away, weak global growth, rising G20 inflation, geopolitical tensions, and foreign capital flows may keep Indonesian financial markets vulnerable.
■ Fiscal support remains, but its effectiveness and sustainability face risks: The 2027 budget exceeds IDR4,000tn, while 2026 tax incentives are estimated at IDR576.4tn. However, execution risks, weaker revenue collection, and rising funding costs could reduce the multiplier effect and narrow fiscal flexibility.
■ Implementation constraints of structural reforms remain significant: Downstreaming, bioethanol, green financing, electricity investment, and IDX demutualization offer long-term potential. However, gas shortages, production restrictions, regulatory uncertainty, and slow project executions may delay meaningful economic benefits.
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