Macro Strategy: Awaiting Clarity

Stock Code	Last Price	Change	Change %
PGUN	26.850	2.425	9,93%
RATU	10.000	1.200	13,64%
DATA	5.300	1.050	24,71%
JARR	7.450	675	9,96%
RAJA	5.825	600	11,48%
WIFI	3.730	470	14,42%
RONY	5.000	440	9,65%
TPIA	8.150	425	5,50%

Macro Strategy

Awaiting Clarity

Ratings agency maintains Indonesia's rating but flags fiscal risks from normalizing commodity prices and rising interest obligations.
BI remains focused on stability despite growth concerns, while the Fed adopts a dovish tone on tariff effects.
Indonesia’s 10-year bond yield climbed to 7.17%, while CDS jumped to 92bps, signaling growing investor concerns over domestic fiscal risks.

Ratings Hold Steady Despite Lingering Risks. Market volatility last week was partly driven by concerns over Indonesia’s fiscal position, stemming from a weak revenue base and fears of a potential credit rating downgrade. However, Moody’s latest assessment reaffirms the strength of Indonesia’s credit fundamentals, maintaining the sovereign rating at Baa2 with a stable outlook. This confirmation follows a similar move earlier this month by Fitch, which maintained Indonesia’s rating at 'BBB'. Both agencies highlight the Indonesia’s still favorable medium-term growth prospects and relatively low government debt-to-GDP ratio. Nonetheless, they also highlighted lingering structural challenges, particularly weak government revenue collection, low GDP per capita, and underperformance on governance indicators relative to peers in the same rating category. Moody’s has downgraded Indonesia’s economic strength score by one notch to a1, and its fiscal strength score to ba1. The downgrade reflects expectations of declining government revenue as commodity prices normalize, narrowing the revenue base amid rising interest payment obligations.

According to Moody, household consumption and investment are expected to remain the key drivers of Indonesia’s economic growth in 2025 and 2026. In addition, continued policy support aimed at boosting the competitiveness of the manufacturing and commodity sectors is seen as a positive factor, helping to foster higher and more inclusive income levels. This outlook is further supported by Indonesia’s abundant natural resources and strong demographic profile. Moody’s warns of external risks, including a potential global slowdown amid escalating trade tensions. On the similar vein, Fitch’s see domestic fiscal vulnerabilities also persist, mainly on weak revenue generation which leaving public finances exposed to external shocks.

BI Hold Rates, Still on Wait and See Mode. Bank Indonesia (BI), in line with the Federal Reserve (Fed), Bank of Japan, and Bank of England, recently decided to keep its benchmark interest rate unchanged at 5.75%, reflecting a cautious stance amid persistent global uncertainty. BI still maintained its priority on stability over concerns about growth moderation. On a more positive note, BI expressed confidence in the rupiah’s stability, supported by still balance capital inflows into bond, SRBI and equity. BI also observed that recent capital outflows from the US have largely shifted toward gold and advanced economies, minimizing the immediate impact on emerging markets such as Indonesia. Looking ahead, BI expects only a modest 25 basis point rate cut from the Fed this year, well below market expectations of three cuts. BI’s view partly underpinned by a decline in UST yields, as the U.S. fiscal deficit is anticipated to narrow, aligning with a broader flattening trend highlighted earlier this year by US Treasury Secretary Scott Bessent.

The Federal Reserve also held its policy rate at 4.25%–4.50%, although the dovish tone from Chair Powell on the potential transitory impact on inflation from the tariff. The Fed’s latest SEP points to slower growth and slightly higher inflation and unemployment, though it maintained its 2026 inflation outlook which signaled confidence in anchored expectations. The latest Dot Plot continues to project the FFR at 3.9% by 2025, unchanged from Des’s reinforcing the view that tariff-related inflation is transitory.

More Room for Rate Cuts, But Caution Prevails. The Fed’s 2025 projections suggest a steeper rate-cutting path than Bank Indonesia (BI) currently anticipates, potentially giving BI room to ease policy earlier. However, if tariffs prove more persistent or inflation remains elevated, the Fed could reassess its stance, and in our view, this could lead to another risk of new uncertainties for BI. In our view, risks appear tilted toward a slowing US economy (please refer to our report The Specter of Growth Scarcity, published on 3^rd Mar), which could reduce external pressure on Indonesian yields and the rupiah. Even so, BI is likely to stay cautious, closely monitoring the impact of Trump’s reciprocal tariff policies and the trajectory of household consumption in early 2025.

We continue to expect BI to cut its policy rate by another 50 bps bringing the BI Rate to 5.25% by year-end as there’s an increasing need for a coordinated policy mix to address domestic economic headwinds.

Volatile Market on Rising Risk, with CDS continue to surge. Over the past week, US Treasury yields declined across the curve, with the 10-year yield falling by 6 bps to 4.25% and the 2-year yield down by the same margin to 3.94%. In contrast, Indonesia’s 10-year government bond (INDOGB) yield rose by 20 bps to 7.17%, reflecting higher domestic risk, inline with our view. Currency movements also highlighted contrasting trends. The US Dollar Index appreciated by 0.27%, while the Indonesian rupiah weakened by 0.92%, closing at IDR16,500 per USD. Credit risk perceptions continue to rise, with Indonesia’s 5-year Credit Default Swap (CDS) widening by 9 basis points to 92 bps.

Fixed Income Flow – Despite higher domestic risk, rising yield appears to lure foreign investors, which added IDR5.53tn in net inflows to Indonesia’s government securities (SBN) over the week, increasing total foreign holdings to IDR901 tn. MTD inflows reached IDR10.36 tn. Flows across domestic sectors were mixed. The banking sector saw significant net outflows of IDR46.73tn last week, with IDR53.19tn in outflows MTD. In contrast, Bank Indonesia (excluding repo operations) recorded strong net inflows of IDR56.45tn last week and IDR88.68tn MTD. The mutual fund industry posted a minor outflow of IDR0.20tn, while the insurance and pension fund sector recorded a net inflow of IDR6.19tn.

Equity Flow – The Jakarta Composite Index (JCI) was the region’s worst-performing market last week, falling 4% w-w. Heightened concerns over domestic conditions triggered a sharp sell-off, prompting the implementation of a circuit breaker on 18^th Mar after the index plunged more than 5%, the first event since the COVID-19 period. Foreign investors withdrew IDR7.5tn during the 3^rd week of March (March 17–21), bringing total MTD and YTD outflows to IDR10.5tn and IDR30tn, respectively. Stocks such as BMRI, BBNI, BBRI, PTRO, and BRIS consistently recorded foreign selling.

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