Highlights

• While in line with SSI’s forecast of 5.54%, Indonesia’s economy delivered a strong upside surprise in 1Q26 with GDP growth accelerating to 5.61% yoy (vs 5.39% in 4Q25), exceeding market expectation of 5.3% and marking the fastest pace of expansion since 3Q22 on the strength of domestic demand during Lebaran, government spending related to the free meals program (MBG), and 1Q25 low-base effect. Private consumption, more than half of GDP, rose to 5.52% yoy while government expenditure surged 21.81% yoy, reflecting accelerated fiscal disbursement and front-loaded policy support.

 

• Amid persistent IDR depreciation, Bank Indonesia delivered a much needed and decisive tightening move at its May 2026 policy meeting by raising its benchmark BI Rate by 50 bps to 5.25%, in line with SSI's expectation. The move, which exceeded market expectations of a 25-bps increase, signals that the central bank is placing greater emphasis on external stability amid intensifying global uncertainty and acute pressure on the local currency. The IDR’s depreciation of c. 2.2% since end-April to Rp17,700 per US dollar likely reinforced the urgency for stronger policy response, particularly as currency players focus on both internal (widening budget and current account deficits) as well as external concerns (geopolitical tensions and tighter external financial conditions).

 

• External vulnerabilities became increasingly visible: Indonesia’s current account deficit widened to USD4.01 billion or 1.1% of GDP in Q1 2026. while the rupiah weakened toward Rp17,700/USD as global oil prices surged above USD100/bbl and foreign capital outflows intensified.

 

• Export governance reform emerged as a strategic pillar of economic policy: Authorities accelerated implementation of DHE SDA regulations, export proceeds repatriation requirements, and broader efforts to reduce underinvoicing and offshore foreign exchange leakages in order to strengthen Indonesia’s external buffers.