Indonesia markets: Markets digest 2027 fiscal priorities, BI to extend pause
BI to hold rates.
Group Research - Econs, Radhika Rao19 Aug 2026
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In the much-awaited annual 2027 budget speech to the parliament, the President struck a conciliatory tone, signalling that the government’s pro-growth bias will continue, while adhering to deficit targets. Growth is projected at a strong 6%yoy, coinciding with the forecast for the budget deficit at -2.4% of GDP (vs assumed -2.85% in 2026). The math assumes a 7% jump in total revenues, alongside 4% increase in expenditure, likely expecting firm growth to aid in consolidation efforts. Other key numbers include inflation at 2.5%yoy in 2027, IDR at 17500/USD and 10Y yield at 6.9%. Onshore markets reacted positively to these announcements, as policymakers refrained from launching large-scale discretionary programs that could have jeopardised fiscal prudence. The scale of planned fiscal consolidation will require a sharp focus on revenue generation and debt management efforts, while being growth supportive.

Besides economic assumptions, other medium-term plans were also outlined – set up commodity exchanges in Jan27, global financial centres in Bali and Jakarta, and develop the Danantara Development Management Fund to support long-term projects such as indigenous electric car, amongst others. Against the backdrop of prolonged US-Iran tensions and elevated risk-free rates, the scope for a sharp pullback in USDIDR and long-end bond yields is limited, though the short-end-to-belly rates are benefiting from moderating SRBI returns and pricing out of rate hike risks.

On a related note, we expect Bank Indonesia to leave the BI rate at 5.75% on Wednesday. This meeting carries added significance as it will be chaired by acting Governor Destry Damayanti, after previous head Perry Warjiyo resigned last month. President Prabowo has since nominated Deputy Governor Destry as the sole candidate for the position of the next Governor. The parliament will, reportedly, vet the candidature next week. If confirmed, the appointment will underscore the government's preference for a technocratic and market-oriented leadership transition. The August rate review will provide a glimpse into the new leader’s priorities and communication style. July inflation had slowed to 2.9% yoy from 3.3% in June, while 2Q growth was relatively resilient at 5.3% yoy, with domestic drivers in the lead, especially investment, followed by consumption, while net trade was a drag. A firm 2Q growth report and stability in the rupiah makes the case for BI to maintain its rates.

Radhika Rao

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

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