Fixed Income Update 21 Aug 2025
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 21 August 2025
The Fed’s Cautious Stance, and Indonesia’s Pro-Growth Policy Path
Through its recent FOMC meeting, the Federal Reserve reaffirmed that inflationary risks remain its primary concern in determining the trajectory of the Fed Funds Rate. While this cautious stance underscores the Fed’s commitment to price stability, the policy debate has begun to shift. The support from Michelle Bowman and Christopher Waller for a 25-basis-point rate cut during the July FOMC meeting has opened the door to the possibility of deeper rate reductions in the coming months, should economic conditions allow.
On the domestic front, Bank Indonesia’s highly accommodative monetary stance is expected to play a pivotal role in stimulating credit growth and reviving momentum in the real sector. Yet monetary easing alone may not suffice. Additional support is anticipated from the fiscal side, particularly through the 2026 State Budget (APBN) , which has been designed with higher government spending. President Prabowo, in his recent address to the House of Representatives’ Plenary Session, outlined eight priority programs aimed at accelerating economic transformation, strengthening social protection, and fostering inclusive growth. Together, the synchronization of accommodative monetary policy and expansionary fiscal measures is expected to provide a more comprehensive boost to Indonesia’s economic resilience, ensuring that both financial markets and the real economy gain stronger footing in navigating global uncertainties.
Regards,
KBVS Research Team