Indonesia and Philippines markets: Testing market resilience
Prospects of BSP hikes.
Group Research - Econs, Radhika Rao10 Jul 2026
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The interplay of fiscal policy, external developments and market accessibility concerns have capped gains in Indonesia’s asset markets. Echoing concerns raised by peers, S&P Dow Jones Indices placed Indonesia’s equities on its 2026/27 Country Classification Watchlist this week (banks have highest weightage, followed by telco and mobility). Domestic indices declined on this newsbreak as markets gauge whether recent regulatory measures to improve transparency, raise free float ratios and undertake shareholding reforms are deemed sufficient by the index providers. The government, meanwhile, reiterated plans to keep the annual fiscal deficit below -3.0% of GDP (at -2.85% of GDP) this year, in line with our expectations (Indonesia Chartbook: Seeking stability in 2H26). Rationalisation in allocations towards flagship schemes will be necessary to compensate for a higher energy subsidy bill (~IDR132trn increase), additional stimulus measures and to maintain capital spending. Compared to pre-West Asia conflict levels, IDR 2Y yield (generic) has adjusted up nearly 200bp, much larger extent than the long-end, following rate hikes and official preference to provide attractive differentials, in essence flattening the curve. SRBI returns will stay high around prevailing levels at 7.3-7.7% at today’s auction, marking a floor for short end rates.

Philippines' June headline inflation eased to 6.4% yoy from 6.8% in May, although core inflation accelerated to 4.4% from 4.1%, pointing to persistent underlying price pressures despite some moderation in transport costs. Despite the decent moderation, headline inflation is well above the BSP's 2–4% target. Add to this, the recent climb in core readings will also deter the central bank from altering their hawkish bias. Governor Eli Remolona has reiterated in recent weeks that the BSP remains prepared to tighten further, if necessary, to prevent second-round effects and keep inflation expectations anchored. Renewed tensions in West Asia have meanwhile weighed on regional risk sentiments, pushing the peso weaker alongside higher oil prices and a firmer US dollar. PHP 2Y and 10Y yields had retreated from June highs on lower oil and peso gains, though that is set to reverse. In the face of a rebound in energy costs and resultant pressure on the peso, a proactive BSP policy stance and the prospect of further rate tightening should help limit excessive currency volatility. We continue to expect policy rates to remain restrictive through 3Q, with risks skewed toward another ~50bp hike should core inflation remain sticky.

Radhika Rao

Senior Economist – Eurozone, India, Indonesia
radhikarao@dbs.com

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