Fitch Ratings: Indonesia Faces Rising Pressure on Confidence and FX Buffers

(Fitch Ratings-Hong Kong-01 July 2026)--Bank Indonesia’s (BI) recent rate hikes underscore a strong resolve to countering depreciation pressure on the rupiah following the government’s announcement of plans to centralise commodity exports, Fitch Ratings says. The central bank raised its benchmark policy rate three times in about a month, by a cumulative 100bp to 5.75%, to support the currency and shore up investor confidence amid domestic market volatility driven by external headwinds and investor concerns over policy credibility, fiscal discipline and capital market governance.

External pressure has become more visible in a narrower goods trade surplus and rupiah weakness. The rupiah has underperformed most peer currencies so far this year, while gross international reserves fell by 4.6% between March and May. The rupiah regained some ground after rate hikes and other stabilisation measures. Fitch projects reserves to cover 4.9 months of current external payments in 2026, slightly below the ‘BBB’ median of 5.0 months. The decline primarily reflects a weaker term of trade from higher global energy prices, BI’s intervention to support the rupiah and external debt servicing. When Fitch revised the Outlook on Indonesia’s sovereign rating to Negative from Stable in early March 2026, it highlighted the risk of further external pressures stemming from fragile investor sentiment, which could raise the government’s borrowing costs and erode external buffers.

BI’s FX intervention reduces reserves and absorbs rupiah liquidity, tightening domestic funding conditions and reinforcing the credit impact of weaker investor sentiment. It has also contributed to a gradual build-up of net short foreign-currency positions, which reached nearlyUSD27 billion at end-May and could increase future FX liquidity needs as they mature. A sustained and sharp decline in FX reserves, particularly if driven by persistent capital outflows linked to weaker investor confidence or further weakening in governance indicators, could add pressure on the sovereign rating.

Lower global oil prices should help ease strains on Indonesia’s public finances and external position. However, it remains uncertain whether the 60-day ceasefire extension in the Iran war will hold, while the recent youth-led protests in Indonesia may increase spending pressures. Fragile investor sentiment could also weigh further on external buffers, underscoring the importance of sustained and effective execution of measures to address investor concerns over capital market transparency.

Policy uncertainty remains a key drag on investor confidence. Reduced investor confidence has also been driven by perceptions that increasing centralisation of policymaking authority could erode the consistency and credibility of Indonesia’s policy mix, factors that were key drivers behind Fitch’s Outlook revision. Those risks could deepen under the government’s plan to gradually centralise strategic natural resource exports through PT Danantara Sumberdaya Indonesia (DSI), a new state-owned entity under the sovereign wealth fund Danantara.

We view execution risk as high because the plan’s operating details remain limited. During a transition period through end-2026, DSI will act as a supervisory intermediary between domestic exporters and overseas buyers of selected commodities, including coal, crude palm oil and ferroalloys, while existing export contracts remain in place, provided no evidence of mis-invoicing. From 1 January 2027, DSI is scheduled to become a commodity trading company, purchasing commodities from domestic natural resource producers, selling them abroad and repatriating foreign-currency export receipts to Indonesia.

Greater state intervention in commodity exports could undermine investor sentiment and weigh on Indonesia’s medium-term growth prospects if it significantly deters FDI inflows, while tighter scrutiny of the country’s natural resource sector could also disrupt commodity export flows. However, if the plan is implemented effectively and supported by strong governance to improve investor confidence, it could gradually strengthen government revenue intake from the strategic commodity sector and support an accumulation of FX reserve buffers. (ends)