Fixed Income Update 03 Sep 2026
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 3 September 2026
Fed Stays Hawkish, Global Risks Challenge Indonesia
Kevin Warsh emphasized that controlling inflation remains the Fed's main priority. He suggested that rate cuts are unlikely until inflation moves closer to the Fed's 2% target. Meanwhile, tensions between the US and Iran increased sharply following US airstrikes on strategic positions linked to Iran's IRGC. The escalation has raised concerns about a wider conflict in the Middle East, particularly as Iran has signaled a potential blockade of the Strait of Hormuz.
Domestically, Indonesia's inflation accelerated in Aug '26, mainly driven by higher food prices. Volatile Food inflation increased significantly, particularly due to higher cayenne pepper and red chili prices amid severe El Niño conditions and supply shortages. With El Niño conditions expected to continue through 1Q27, inflation risks remain tilted to the upside
On the other hand, Indonesia's trade balance improved to a small surplus in Jul '26, supported by stronger exports of mineral fuels, iron and steel, nickel, and palm oil. Import growth also slowed from the previous month, although oil and gas imports remained high. Going forward, stronger demand from major trading partners could support exports and the trade balance.
Regards,
KBVS Economist Team