DBS Group Research economist Radhika Rao discusses Fitch Ratings’ decision to cut Indonesia’s sovereign rating outlook to negative while affirming the BBB rating, following a similar move by Moody’s. She highlights concerns over policy uncertainty, fiscal framework changes and ambitious growth targets, noting that these factors could keep Indonesian yields supported and the currency under pressure in coming months.
Fitch outlook cut and policy concerns
“Fitch Ratings joined its peer Moody’s, in changing Indonesia’s sovereign rating outlook to ‘negative’ from ‘stable’ on Wednesday, while affirming the ‘BBB’ rating.”
“Backing the outlook change, the agency said“ increasing policy uncertainty and erosion of Indonesia’s policy mix consistency and credibility amid growing centralisation of policymaking authority.”
“It added that an ambitious growth target of 8% would necessitate strong support from social welfare spending and fiscal-monetary easing, which without commensurate pickup in revenues could pose risks to macro stability.”
“Lastly, plans to revisit the longstanding fiscal framework as part of a review of the State Finance Law included in the 2026 legislative priorities were also seen as potentially weakening policy credibility and raising concerns about the ability to finance high fiscal deficits. A negative outlook change typically reflects a cautious view on the sovereign, opening the window for follow-up action over the next 18-24 months.”
“The shift in the domestic outlook, together with the broader geopolitical situation in the Middle East, is likely to limit the scope for a relief rally in onshore financial markets, supporting yields while keeping the currency under pressure.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/indonesia-rating-outlook-risks-weigh-on-markets-dbs-202603051842
