Macro Strategy: Interpreting the Signals

Stock Code	Last Price	Change	Change %
BOGA	1,790	355	24.74%
BALI	1,750	345	24.56%
BBSI	3,950	230	6.18%
NICK	1,390	155	12.55%
STAR	780	155	24.80%
CLAY	2,950	100	3.51%
INDF	6,800	100	1.49%
LUCY	915	80	9.58%

Macro Strategy

Interpreting the Signals

Rising yields and weaker IDR renew rate-hike concerns, yet FX trends, liquidity conditions, and BI policy suggest low probability.
Recent SRBI yield moves reflect liquidity calibration, not tightening, keeping rate hikes unlikely while delaying potential rate cuts.
BI calibrates SRBI awards to balance liquidity and credit as limited FX intervention and seasonal USD demand pressure.

Risk of Rate Hike on Rising Yield and Weak IDR. Rising yields have emerged as a new source of concern, particularly after Japanese Government Bond (JGB) yields reached fresh highs on fears of fiscal deterioration. UST yields have also climbed sharply to 4.3%, while 10-year INDOGB yields moved higher in tandem closer to 6.4% level. In last Friday’s auction, SRBI yields surged to 4.8%. Against this backdrop, and following our previous report, “The Currency Conundrum,” we reassess whether the recent spike in yields and continued rupiah weakness could trigger a change in policy rates, specifically the risk of a rate hike. In short, we view such an outcome as unlikely at this stage, based on prevailing FX movement, liquidity conditions, and Bank Indonesia’s policy reaction trends.

The IDR has remained under pressure since early January, down around 0.7% YTD as of last week after briefly reaching -1.4% YTD at IDR 16,950 per USD, temporarily making it the weakest-performing ASEAN currency. This move coincided with a stronger USD, as the DXY peaked at +1.1% YTD before easing, reflecting expectations of an extended Fed rate hold and elevated geopolitical risks. Domestically, sentiment has also been weighed by concerns over fiscal discipline. As highlighted in our earlier report “The Reflections and Expectations,” FX volatility remained contained in 2025 despite a weaker average IDR level, with the trading range staying historically narrow at 4.72%, highlighting the effectiveness of BI’s intervention framework. As such, we view the recent depreciation as a gradual level adjustment rather than disorderly volatility. Historically, BI’s policy response has been more sensitive to volatility than to steady depreciation, suggesting current FX pressure alone remains insufficient to warrant a rate response.

SRBI Yields vs Bid-to-Cover Signals. During Bank Indonesia’s surprise easing phase in 2H25, four-week movements in SRBI yields proved to be a reliable leading indicator. However, this relationship appears to apply mainly during rate-cut cycles, not in reverse. In late November to early December 2025, SRBI yields climbed to around 5.0%, alongside a sharp rise in weekly awarded amounts to IDR36–39 tn, roughly double their usual levels. Notably, this did not lead to a policy rate hike, marking a departure from past patterns and suggesting that higher SRBI yields alone no longer serve as a consistent signal for tightening. Movements in SRBI yields can also be interpreted through their bid-to-cover ratios. Higher yields accompanied by elevated bid-to-cover levels typically reflect efforts to align short-end rates with prevailing market risk conditions, rather than signaling a shift in medium-term policy rates.

From a peak of 4.94% in Nov-25, SRBI yields eased to around 4.7% in Jan-26, alongside stronger auction demand. Between mid-December and mid-January, bid-to-cover ratios climbed to 6–8.5, driven by limited weekly awards of IDR10–14 tn against solid demand of IDR30–40 tn, indicating robust investor appetite rather than tightening pressure. Only in last week’s auction, following renewed IDR pressure, did awards jump to IDR39.7tn, the highest since June 2024, translating to bid cover ratio of 1.1x, alongside a 10-bps rise in SRBI and 1-year INDOGB yields.

While this move may appear concerning, we see it as a measured recalibration of liquidity absorption to reinforce currency stability. As such, the recent yield increase reflects signaling and positioning rather than a shift toward policy tightening. Indeed, given these signals, the scope for a rate cut in the medium term appears limited. In line with current Fed rate-cut probabilities, any easing would likely occur no earlier than mid-year.

Constraint on FX Intervention. Despite recent uptick in SRBI awarded auctions, overall net flows from SRBI and SBN operations suggest that BI continues to maintain a broadly neutral liquidity stance, with no signs of sustained withdrawal. This aligns with BI’s objective of strengthening policy transmission rather than tightening financial conditions. Banking conditions are improving, with loan growth accelerating to 9.69% y-y in Dec-25 from 7.74% in Nov-25. As noted above, BI’s adjustment of SRBI award sizes aims to balance liquidity absorption with credit support, reflecting policy fine-tuning rather than tightening.

Such a measure appears opportune as FX intervention options remain limited. Although reserves remain elevated at USD156.5bn and have been stable above USD150bn through 2025, recent Ministry of Finance remarks highlighting strong USD demand suggest part of the IDR pressure is seasonal and transactional. This reduces the effectiveness of prolonged intervention and supports BI’s preference to smooth FX volatility rather than defend a specific exchange-rate level, reinforcing its tolerance for orderly adjustment instead of escalating policy measure.

BI Meeting: Stability remains at the fore. BI’s latest communication reinforces a message of policy continuity. The central bank continues to prioritize stability and policy-rate transmission while maintaining a pro-growth stance. The Governor reiterated that recent IDR depreciation reflects a combination of global factors and domestic perceptions, including concerns surrounding fiscal discipline and the Deputy Governor nomination process, while emphasizing that the process adheres to established governance standards.

BI also acknowledged that FX pressures have been amplified by seasonally elevated USD demand, including dividend and interest payments as well as SOE-related imports (notably Pertamina and PLN). In response, BI reaffirmed its commitment to IDR stabilization through a comprehensive policy mix, including offshore NDFs, onshore spot and DNDF operations, and secondary-market SBN purchases. A rate hike would require more persistent and disorderly currency pressure or a meaningful inflation shock, neither of which is currently evident. Absent these conditions, the current policy mix remains oriented toward stability and growth support, with credit expansion targeted at 8–12% in 2026.

In our view external developments also offer some relief to IDR. Easing geopolitical tensions and signs that former President Trump has stepped back from near-term tariff escalation have contributed to a softer US dollar, easing external pressure on the rupiah. Trump announced the shelving of proposed tariffs on European countries following discussions with NATO leaders at the World Economic Forum, although details remain limited. Separate reports also pointed to NATO-level discussions on potential US involvement in limited areas of Greenland, signaling de-escalation rather than escalation. In response, the DXY slipped below 98, nearing its lowest level in over three months, as currency markets remained cautious toward the dollar amid continued uncertainty surrounding US economic policy. This softer USD backdrop reduces near-term external pressure on the IDR and further weakens the case for a defensive policy rate response.

Capital Market – Volatility is on the rise. The 10-year US Treasury yield was volatile over the week, briefly climbing to 4.30% before easing to 4.24%, while the 2-year yield edged up 1 bp to 3.60%. In the domestic market, the 10-year INDOGB yield rose 15 bps w-w to 6.39%. Meanwhile, the US Dollar Index weakened by 1.10% w-w to 98.30, supporting a 0.37% appreciation in the IDR, which closed at IDR 16,822 per USD. On the risk front, Indonesia’s 5-year CDS widened slightly by 2 bps WoW to 74 bps, indicating a modest uptick in perceived sovereign risk.

Fixed Income Flows. The Ministry of Finance reported weekly net foreign outflows of IDR4.58tn from the SBN market, lowering total foreign holdings to IDR881tn, although MTD inflows remained positive at IDR1.89tn. Domestically, the banking sector continued to add position on the back of rising yield, recording inflows of IDR 50.49 tn w-w and IDR136.91 tn MTD. In contrast, Bank Indonesia (excluding repo transactions) posted outflows of IDR27.38tn w-w and IDR100.71tn MTD. Mutual funds registered inflows of IDR4.11tn, while insurance companies and pension funds collectively posted w-w inflows of IDR11.77tn.
SRBI Flows. SRBI outstanding declined by IDR41.62tn w-w to IDR 693 tn. Foreign investors recorded net weekly outflows of IDR 8.83 tn, bringing cumulative YTD net outflows to IDR 2.67 tn. Total foreign holdings now stand at IDR 102 tn, equivalent to around 15% of total SRBI outstanding.
Equity Flows. Foreign selling pressure intensified in the third week of January 2026, with net outflows reaching IDR3.3tn, marking the largest weekly outflow since the 3rd week of Oct-25. As a result, cumulative MTD foreign inflows moderated to IDR3.2tn. This reversal in flows lead the JCI slipped back below the 9,000 level after briefly touching a new all-time high of 9,135. At the stock level, foreign selling was concentrated in several large-cap names, with BBCA, BUMI, BMRI, AMMN, and CBDK emerging as the top five stocks experiencing the most consistent net outflows.

… Read More 20260126 Macro Strategy