Indonesia: DBS analysis on index changes and budgetary pressures

Indonesian Market Fluctuations and Policy Challenges

According to DBS Group Research economist Radhika Rao, Indonesian financial markets have experienced significant volatility, with the Rupiah, government bonds, and stock market all recovering after recent declines. She points to decisive action from Bank Indonesia and emphasizes that upcoming decisions by FTSE Russell and MSCI regarding Indonesia’s inclusion in their equity indices will be crucial for the market. Rao also draws attention to a larger-than-expected fiscal deficit in the first quarter of 2026 and growing budgetary strain from increased energy subsidies.

Key Factors Impacting Indonesian Assets

• Currency and Asset Recovery: After three consecutive days of losses that pushed the Rupiah to new lows, the currency rebounded to the upper 16,000s on Wednesday, alongside gains in local bonds and equities, supported by favorable global market sentiment.
• Central Bank Commitment: Bank Indonesia has reaffirmed its dedication to maintaining Rupiah stability as its main objective.
• Foreign Reserves: The central bank’s active interventions are reflected in a decrease in foreign reserves to $148.2 billion in March, down from $151.9 billion in February, returning to levels seen in mid-2024.
• Geopolitical Risks: Ongoing tensions in the Middle East mean that Indonesian markets remain sensitive to international developments, with short-term bond yields likely to stay supported as expectations for rate cuts diminish.
• Energy Subsidy Strain: The government’s energy subsidy allocation for the year, set at IDR 318 trillion based on an oil price of $70 per barrel and an exchange rate of 16,500, has come under pressure as both benchmarks have been exceeded since March.

(This report was produced with the assistance of artificial intelligence and subsequently reviewed by an editor.)