ECONOMIC UPDATE - FX reserves review - FX reserves shrink but the Rupiah slightly appreciates

FX reserves fall to the lowest level since Nov-25

Indonesia’s foreign exchange (FX) reserves declined to USD 151.9 bn in Feb-26, down from USD 154.6 bn in January, marking the lowest level since Nov-25. The decrease was mainly driven by government external debt repayments and BI’s interventions to stabilize the Rupiah amid persistent uncertainty in global financial markets. Despite the decline, the reserve position remains strong, equivalent to 6.1 months of imports or 5.9 months of imports and external debt servicing, well above the international adequacy standard of around three months of imports.

Rupiah strengthens slightly amid BI intervention and SRBI inflows

In the currency market, the Rupiah slightly appreciated by 0.08% MoM to Rp16,771/USD in Feb-26, supported by capital inflows into SRBI (+USD1.70 bn) and Bank Indonesia’s interventions to stabilize the currency amid a stronger US dollar. The US dollar index (DXY) rose from 96.99 in Jan-26 to 97.60 in Feb-26, driven by uncertainty over the timing of future Federal Reserve rate cuts and concerns surrounding reciprocal tariffs. Meanwhile, yields across all SRBI tenors increased, reflecting Bank Indonesia’s efforts to maintain the attractiveness of rupiah assets. The 6-month yield rose from 4.89% in Jan-26 to 5.03% in Feb-26, the 9-month yield increased from 4.92% to 5.09%, and the 12-month yield climbed from 4.96% to 5.17%.

Foreign bond outflows add to external pressures amid rating outlook downgrade

Capital flows outside SRBI showed signs of pressure in Feb-26, potentially adding to FX volatility alongside the decline in FX reserves. The bond market recorded a capital outflow of USD0.20 bn in Feb-26, driven by Moody’s revision of Indonesia’s sovereign rating outlook from stable to negative. The Inter Dealer Market Association (IDMA) index declined to 100.76 in Feb-26 from 101.07 in Jan-26. In line with this, the 10-year government bond yield increased by 10 bps to 6.43%. Pressure intensified in Mar-26 following Fitch’s outlook downgrade and escalating Iran–US–Israel geopolitical tensions, pushing the 10-year government bond yield up by 33 bps MtD to 6.71% as of 9 Mar, the highest level since Jun-25.

Trade surplus expected to narrow in Feb-26

In international trade, the trade surplus is expected to narrow in Feb-26, in line with the decline in FX reserves. Imports are likely to increase due to seasonal demand ahead of Ramadan, as reflected in the rise in the manufacturing PMI to 53.8 in Feb-26 from 52.6 in Jan-26. Additionally, the price of oil (Brent), a key import commodity, increased by 2.53% MoM to USD 70.85/bbl in Feb-26. In contrast, exports are projected to weaken amid softer commodity prices, subdued global demand, and fewer working days, with CPO prices, a key export commodity, declining by 4.11% MoM and 15.64% YoY to USD 3,989/ton in Feb-26.

Ample FX reserves support BI-rate hold this month

Looking ahead, despite the recent decline, FX reserves remain ample and continue to provide a solid buffer to maintain Rupiah stability, reducing the urgency for BI to raise its policy rate this month. To attract capital inflows, BI is expected to continue utilizing pro-market monetary instruments such as SRBI, SVBI, and SUVBI, alongside active foreign exchange operations, including spot market intervention, DNDF, and SBN purchases. On the other hand, a BI-rate cut could be risky as it may trigger capital outflows amid escalating geopolitical tensions and the negative outlook from global rating agencies (Fitch and Moody). BI is also expected to continue implementing pro-growth policies through the Macroprudential Liquidity Incentive (KLM). Overall, we expect BI to maintain the   BI-Rate at 4.75% this month.