Societe Generale analysts Kunal Kundu and Galvin Chia report that Indonesia is experiencing early-2026 fiscal deterioration, primarily due to front-loaded government expenditure. The analysts note that the country's primary balance is already in deficit, which is increasing financing needs and reinforcing existing market concerns about Indonesia's fiscal position [1].
Despite the fiscal slippage, Societe Generale argues that this development is not a new shock for the foreign exchange (FX) market but rather adds to long-standing worries. They emphasize that the main drivers for the Indonesian currency remain the risks associated with larger net oil and gas imports and a widening current account deficit [1].
The analysts maintain a bearish stance on the Indonesian rupiah, expecting the fiscal data to exert some upward pressure on longer-dated interest rates. They anticipate that the fiscal situation will marginally increase longer-end premia in rates, given its role in absorbing inflationary shocks. Societe Generale also expects Indonesian authorities to closely monitor fiscal execution and remain attentive to international investor perceptions [1].
Societe Generale concludes that the latest fiscal data does not alter their convictions, and they continue to hold a bearish bias on the Indonesian currency and a bear-flattening bias on rates [1].
CONCLUSION
Societe Generale sees Indonesia's fiscal slippage as reinforcing, rather than changing, their bearish outlook on the rupiah and longer-dated rates. The main market risks remain tied to external balances, with fiscal execution and investor sentiment under close watch. No immediate new shocks are anticipated, but fiscal risks are expected to keep pressure on the currency and rates.