Fixed Income Update 18 Sep 2025
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 18 September 2025
Liquidity is Ready And Steady, Yet Constrained By A Weak Labor Market
The Federal Reserve has officially pivoted its policy, delivering a widely anticipated quarter-point rate cut to a new target range of 4.00–4.25%. This move reflects the Fed’s effort to balance conflicting economic signals—providing support for slowing growth while acknowledging that inflationary pressures remain persistent. Updated projections suggest the Fed may implement two additional rate cuts before the year’s end. This shift toward a more accommodative U.S. stance is expected to set off a broader global easing cycle, potentially weakening the dollar and channeling greater investment flows into emerging markets. On the other hand, the Fed’s ongoing balance sheet reduction—through the unwinding of its U.S. Treasury and MBS holdings—is likely to limit the extent of the decline in U.S. government bond yields relative to the Fed funds rate cut.
Anticipating the Fed’s dovish pivot, Bank Indonesia moved preemptively, cutting its benchmark rate by 25 bps to 4.75%. The decision was underpinned by expectations of global monetary easing, Rupiah stability, and well-anchored domestic inflation. Looking ahead, we expect BI to continue easing by at least two more 25 bps cuts through end-2025, in line with its consistent pro-growth stance since the beginning of the year. With additional support from fiscal, macroprudential, and microprudential measures—coupled with stronger focus on production and labor market dynamics—we anticipate Indonesia’s economy to accelerate toward the upper bound of 4.6%–5.4% YoY growth by end-2025.
Regards,
KBVS Research Team