Highlights

• Indonesia entered 2Q26 with weaker domestic momentum following 1Q26 GDP growth of *5.61% YoY, particularly given macroeconomic policy focus gradually having shifted from maximizing growth toward preserving macro-financial stability.

 

• Bank Indonesia delivered one of its most aggressive tightening cycles in recent years, raising the BI Rate by a cumulative 100 bps* since May to defend the rupiah, contain imported inflation, and maintain investor confidence amid heightened both global and domestic uncertainties.

 

• External and internal vulnerabilities became increasingly visible throughout the quarter as both current account and budget deficits widened, the trade surplus nearly disappeared, foreign exchange reserves declined to their lowest level in two years, as well as the rupiah briefly weakened beyond IDR18,000 per US dollar.

 

• Inflation has moved towards the upper band of Bank Indonesia's target range despite increasing pressures from food prices, energy costs, and IDR depreciation, while domestic demand showed early signs of moderation following the exceptionally strong first-quarter expansion.

 

• Structural reforms and government policies continued to cause weakness in stock and bond markets on the back of continued uncertainties and lack of clarity surrounding export governance, DHE-SDA implementation, Danantara-led SOE consolidation, commodity export supervision, and MSCI's market accessibility review in November 2026.
• SSI expects 2Q26 to represent a slowdown in economic growth relative to 1Q26's elevated level. Our high-frequency nowcasting framework projects GDP growth of around 5.20% YoY in 2Q26, bringing 1H26 average to 5.4% and resulting in *full-year growth of 5.36%, helped by easing geopolitical tensions, the government's targeted fiscal stimulus and potentially lower MBG program.