Fixed Income Update 08 Jan 2026
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 8 January 2026
Global Tensions, Softer Growth Signals, and Indonesia’s Monetary Policy Outlook
Recent U.S. actions toward Venezuela signal a more interventionist stance, unsettling allies—particularly European NATO members—amid concerns that any military move involving Danish territory could weaken alliance cohesion. Geopolitical risks have intensified further following the detention of a Russian oil tanker in the North Atlantic and renewed tensions around Iran, where protests driven by the rial’s sharp depreciation have broadened into wider political demands.
Relatively resilient U.S. labor data and the still-limited economic impact of geopolitical tensions have increased expectations for more than two Federal Reserve rate cuts this year. This has supported a decline in global government bond yields, weakened the U.S. dollar, and driven front-end re-steepening of the U.S. Treasury yield curve—consistent with a gradual slowdown rather than a sharp downturn.
Domestically, Indonesia’s macro indicators have softened. Manufacturing PMI eased to 51.20 in December 2025, exports contracted sharply in November, while imports turned marginally positive, keeping the trade surplus intact. Inflation rose to 2.92% YoY in December, the highest since April 2024, reflecting food, external, and seasonal pressures.
Looking ahead, inflation risks remain skewed to the supply side, while Rupiah volatility is likely to persist into 2026. Against this backdrop, we expect Bank Indonesia to keep the BI Rate unchanged at the January 20–21, 2026 policy meeting. Attention will also be on fiscal risks, particularly the possibility of a wider deficit beyond the 2.75% target, with updated figures expected in mid-January 2026.
Regards,
KBVS Research Team