Societe Generale analysts Kunal Kundu and Galvin Chia say the deterioration in Indonesia’s fiscal position in early 2026 is due to spending generated in early 2026, with the primary balance already in deficit and increasing financing needs. They say this mainly reinforces existing concerns rather than causing a recent shock to currencies, and they maintain a bearish stance on the Indonesian currency while expecting some upward pressure on longer-term interest rates.
Fiscal risk reinforces the bearish currency bias
“While the deficit data adds to long-standing market concerns about the fiscal situation, it is likely to be a less significant marginal driver of the exchange rate, which should primarily reflect risks from higher net oil and gas imports and a widening current account.”
“However, the data should slightly increase the interest rate premium at the longer end, given the role of fiscal policy in absorbing the inflation shock.”
“Fiscal enforcement will continue to be closely monitored and we expect the Indonesian authorities to be aware of the views of international investors.”
“These data do not change our beliefs: we remain bearish on FX and flattening bearish on interest rates.”
(This article was created with the aid of an artificial intelligence tool and has been reviewed by an editor.)
