Macro Strategy: Beyond The Pivot

Stock Code	Last Price	Change	Change %
GGRM	14.850	650	4,58%
PANI	14.000	500	3,70%
FISH	2.160	430	24,86%
PTRO	6.950	400	6,11%
PGUN	14.250	350	2,52%
TCPI	7.650	350	4,79%
BBCA	8.575	300	3,63%
MDKA	2.430	260	11,98%

Macro Strategy

Beyond The Pivot

BI may still ease into 2026, but narrower spreads, tighter liquidity, and IDR risks mean focus shifts to policy coordination and transmission.
Our base case expects a slower easing cycle, stable rupiah, rising foreign ownership, and base case 10-yr yields between 5.63–6.05% in 2025–26.
The extension of cash stimulus and other fiscal measures will directly support private consumption, keeping growth on track above 5%.

BI Rate – How Low Can It Go. Bank Indonesia (BI) kept its benchmark rate unchanged at 4.75% in October, following six consecutive cuts totaling 150 bps since September 2024. This pause signals a transition from aggressive easing toward enhancing monetary transmission, supported by the new forward-looking Liquidity Incentive Policy (KLM) designed to amplify the effectiveness of policy easing across the financial system. The main question now is how much further BI can lower rates while maintaining IDR stability and sustaining its pro-growth stance. In our view, BI still has room to continue easing into 2026, underpinned by its “frontloaded” approach relative to the Fed’s recent pivot, weaker than expected US CPI and the government’s recent fiscal expansion. However, with the BI–Fed rate spread narrowing to around 50 bps and liquidity pressures rising, additional cuts may come with increased IDR volatility and thinner yield buffers. We highlight four key observations:

Real rate compression and capital outflows. Since September 2024, Indonesia’s real interest rate has fallen sharply to 3.3% (-2.96% YTD), marking the steepest decline among regional peers. The adjustment has triggered portfolio outflows of USD5.26bn over Sep–Oct, prompting FX intervention by BI with reserves decline to USD149tn.

Weaker rate-yield linkage. The relationship between BI rate changes and INDOGB yields appears to have weakened, largely due to persistent market intervention. Since the Burden Sharing era, BI’s stronger role in both primary and secondary bond markets has dampened the typical yield response to policy adjustments.

Muted yield reactions post-2020. The 10-yr INDOGB yield moved an average of -19.8 bps 1-month after a rate cut in the post-2020 period, compared to -22.3 bps before 2020. The difference is even more striking during hikes, with yields up +17.6 bps post-2020 vs +42.3 bps pre-2020.

Rate spread impact is moderating. Past episodes of BI–Fed spread narrowing show a consistent compression in yield differentials—2016–2018 (-200 bps spread, -219 bps yield), 2021–2023 (-325 bps spread, -166 bps yield), and 2024–2025 (-275 bps spread, -132 bps yield), reflecting greater central bank intervention, ample liquidity, and rising domestic investor participation that have reduced yield sensitivity to policy moves.

The scope for further easing remains, but the balance of risks has shifted. BI’s next moves will likely be guided more by forex stability, rate transmission and liquidity situation than by the growth impulse alone. The narrowing rate gap with the Fed and fading yield sensitivity suggest that future easing will rely increasingly on liquidity tools and policy coordination rather than policy rate cuts as the main transmission channel. Moreover, impact on yields will increasingly be influenced by factors beyond policy rate decisions alone.

Yields at Crossroads. To reflect the latest BI’s stance, we revise our yield outlook. Our base case now assumes a slower pace of monetary easing, a steadier rupiah around 16,250, and a modest pickup in foreign ownership. Under this scenario, the policy rate is expected to remain at 4.75%, with the 10-year INDOGB yield projected at 6.05% in 2025. In a more optimistic case, assuming an additional rate cut, the yield could ease further to around 5.87%.

Looking ahead to 2026, our base case projects a continued but gradual easing cycle, with the BI rate reaching 4.25%, the 10-year yield settling at 5.63%, foreign ownership rising to 14.6%, and the rupiah staying near 16,240. This reflects a softer yield environment, underpinned by steady liquidity support and a stable external position.

On the fiscal side, the government’s financing needs are set to increase, with gross bond issuance expected to rise from IDR 1,402tn in 2025 to IDR 1,457tn in 2026. The increase reflects larger maturities and reduced funding from loan programs. Domestic issuance will continue to dominate, with auction volumes totaling around IDR 990tn, or roughly IDR41.2tn per two-auction cycle. Despite higher gross supply, overall pressure should remain manageable, supported by consistent BI market operations and healthy investor demand.

The Fiscal Drive to Sustain Growth Above 5%. Indonesia’s 3Q25 GDP growth is estimated to ease slightly from the 2Q’s 5.21% growth, which mainly reflects softer private consumption. Although inflation stayed within target, lack of rising income drivers continued to erode purchasing power, particularly among lower-income households. Import growth also declined modestly, consistent with weaker demand for capital and intermediate goods, while exports remained a net positive contributor despite lower energy prices, supported by still-favorable commodity prices such as CPO and nickel. Investment continued to underpin growth, driven by ongoing downstreaming projects that boosted capital formation, resource-based manufacturing, and supporting infrastructure. This helped offset part of the consumption slowdown.

Manufacturing activity stayed in expansionary territory, with the PMI remaining above 50 throughout Q3. Government spending held steady, though additional fiscal measures could further strengthen household purchasing power going into the next quarter. Looking ahead, the government’s additional stimulus measures through year-end are expected to strengthen private consumption and support a rebound in 4Q25 growth. Based on our estimates, the new cash transfer program (BLT Kestra) could potentially lift GDP growth from the baseline projection of 4.87% to c. 5.12%. This suggests an effective short-term fiscal multiplier broadly in line with Indonesia’s historical range.

The fiscal boost should have a direct and immediate impact, given that private consumption accounts for the largest share of Indonesia’s economic activity. The program specifically targets the lowest four income deciles, helping to preserve purchasing power and restore consumer momentum, keeping growth on track for an above 5% trajectory.

Widening spread, outflow continue on bond, while equity saw reversal. The 10-year US Treasury yield experienced notable volatility, slipping by 5 bps to 3.97% before rebounding to around 4.02%, while the 2-year yield edged up by 2 bps to 3.48%. In Indonesia, the 10-year government bond yield rose 4 bps to 6.00% following BI’s latest decision to hold rate steady, against market expectation. The DXY strengthened 0.62% w-w to 99.05, while the IDR weakened slightly by 0.06% to IDR16,595 per US dollar. Meanwhile, Indonesia’s 5-year CDS spread narrowed by around 3 bps to 80 bps, indicating a modest improvement in sovereign risk sentiment.

Fixed Income Flows - Foreign investors recorded a weekly net outflow of IDR8.70tn from government bonds, bringing total foreign holdings to IDR885tn. On MTD basis, cumulative foreign outflows reached IDR22.87tn. Domestic investors provided support, led by banks with a weekly net inflow of IDR23.49tn (MTD IDR12.05tn). Bank Indonesia (excluding repo transactions) posted a small weekly net inflow of IDR1.60tn but remained in net outflow territory for the month at IDR2.54tn. Mutual funds recorded inflows of IDR7.17tn during the week, while insurance and pension funds added a combined IDR8.30tn.

SRBI Flows - Outstanding Bank Indonesia Rupiah Securities (SRBI) fell slightly by IDR0.91tn to IDR706tn. Foreign investors posted a weekly net outflow of IDR4.01tn, extending total year-to-date outflows to IDR136.76tn. Foreign ownership now stands at IDR78tn, equivalent to around 11% of total SRBI outstanding.

Equity Flows - The JCI rose 4.5% w-w, marking the second-best performance in the region, supported by a reversal of foreign outflows. Foreign investors finally recorded net inflows of IDR4.5tn in the 4th week of October, trimming MTD outflows to IDR2.9tn and YTD outflows to IDR47.5tn. Stocks with the most consistent foreign inflows included ASII, TLKM, BRMS, CUAN, and ANTM, while the largest and most persistent outflows were seen in BBRI, BMRI, BBNI, BUMI, and EMTK.

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