Indonesia: Higher oil risks delay BI easing – Standard Chartered

FXStreet Insights Team FXStreet

Standard Chartered economists maintain their call for Bank Indonesia to cut its policy rate by 25 bps in Q2-2026, but note that higher Oil prices and inflation now tilt risks toward a prolonged hold. They highlight fiscal constraints, government fuel subsidy policy, and FX stability concerns as key factors for Bank Indonesia.

Oil shock complicates BI rate outlook

"We expect Bank Indonesia (BI) to cut its policy rate by 25bps in Q2-2026."

"Due to the Middle East conflict, the risk to our inflation forecast is now to the upside, although we think the government will try to minimise the crude oil price pass-through by cutting non-subsidy spending."

"Government estimates suggest that a 10% increase in oil prices lifts revenues by 0.1% of GDP but raises energy subsidies and compensation by 0.3% of GDP; this widens the fiscal deficit by 0.2% of GDP."

"The rise in global oil prices now significantly increases the risk of BI staying on hold in the coming months."

"Moreover, due to heightened risk sentiment, BI may be wary of a negative impact on FX stability if it cuts further in this environment."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

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