Asia FX and Rates Strategy: Indonesia Trip Note – Striving for Stability

Research evidence excerpt

Asia FX and Rates Strategy: Indonesia Trip Note – Striving for Stability

Asia FX and Rates Strategy

09 July 2026 Citi Research

We visited policymakers and onshore private sector experts in Jakarta last week.

Overall, the impression we got was that improvement in the external environment

helps Indonesian assets significantly. Still, there needs to be work done to stabilize

local currency assets. We draw comfort from the observation that the leadership

seems focused on maintaining discipline as far as fiscal issues are concerned,

though risks remain around a lack of clarity on the consolidated fiscal deficit. Bank

Indonesia has now moved towards a pro-stability stance to anchor rupiah stability.

However, mixed messages around its liquidity stance highlight a potential lack of

co-ordination across various agencies, which might act to the detriment of the

performance of local currency assets. More than the policy itself, it's the lack of

clarity around policies and regulations that seems to be impacting domestic and

foreign sentiment. Despite the lack of clarity around domestic policy making,

technical factors have resulted in decent performance of long-end bonds, which

we believe could continue for the most part of the remainder of 2026.

Monetary Policy – Bank Indonesia’s focus has now become pro-stability and the

recent emergency/off-cycle hike is indicative of it. The emphasis is now on

maintaining rupiah stability, which BI sees mostly vs the USD and not necessarily

against the trade-weighted basket. Other currency pressures are noted but the

USD remains the primary benchmark as far as stability metrics are concerned.

Policy rate and monetary instrument calibration involves selective hikes and use of

SRBI to manage inflation and exchange rate pressures.