Reading Market Trends with DBS Bank Economists in the Face of Q3 2025 Challenges | Bahasa

Indonesia, 21 Aug 2025 - To coincide with Bank Indonesia’s decision to cut its benchmark rate to 5 percent during its Board of Governors' Meeting on Wednesday (08/20), DBS Group Research released its Q3 economic outlook with a focus on Indonesia's resilience amid global disruptions. The 25 basis-point-cut in the benchmark rate marked the second consecutive month of a cut, and was in accordance with DBS Group Research's forecast that suggested room for an accommodative monetary policy.

"A number of high-frequency indicators of (economic) activity show weakening growth momentum in the second half of this year which, coupled with quite challenging global trade conditions, prompted BI to maintain pro-growth policies. The decision was made amid on-target inflation and a relatively stable rupiah," said DBS Bank Senior Economist Radhika Rao.

Beyond BI policies, DBS Group Research's analysis also provides a deeper insight into domestic and foreign macroeconomic conditions that affect domestic stability.

US Economy Under Pressure

The US economy currently faces multiple complex risks, including an inflation that stubbornly stays high, the ensuing impact of international trade tariffs, the tightening of immigration policies, the need for fiscal stimulus, surging asset prices, and political pressure on the Fed regarding its monetary policy decisions.

According to DBS Group Research’ analysis, US economic growth will slow in the second half of 2025. The Fed is expected to cut interest rates by 50 basis points in the second half of 2025, with the possibility of an additional 50 basis-point-cut in 2026.

Impact of US Tariffs on Indonesia Relatively Limited

Although most of Indonesia's textiles, furniture, and footwear are destined for the US market, the impact of tariffs on Indonesia is expected to be less significant than on other ASEAN countries. DBS Group Research notes several key factors supporting Indonesia's economic growth, including:

With inflation has eased, there is room for a more flexible monetary policy.

Increased welfare and government spending have boosted domestic consumption.

Positive foreign direct investment (FDI) inflows reflect international investor confidence.

“Indonesia is in a relatively better position to deal with a new wave of US tariffs. Its diverse economic structure provides the necessary resilience,” said Radhika.

In addition, DBS Group Research underlines the importance of negotiating free trade agreements with strategic partners, including the removal of tariff barriers for more than 99 percent of Indonesian products to the US market, strong domestic policy support, and a comprehensive foreign exchange management. It is also recommended that Indonesia take advantage of opportunities from shifting global trade flows to drive economic growth amid international dynamics.

Inflation Controlled at 3–4 Percent, BI Dovish Amid Fed's Easing Policy

Indonesia’s inflation is projected to remain within Bank Indonesia's target range throughout 2025 and 2026. Bank Indonesia is expected to gradually adjust its monetary policy by taking into account the rupiah exchange rate, the direction of the Fed's fund rate, and Indonesia's economic growth target of 5 percent.

Although fiscal deficit remains relatively high, DBS Group Research is optimistic that it will remain below 3 percent of gross domestic product (GDP). For 2026, economic growth is projected to increase to 5.4 percent year-on-year, the highest since 2018, supported by improved government revenue.

Meanwhile, with the US Federal Reserve also expected to ease monetary policy next month, Bank Indonesia is likely to maintain its dovish stance during the fourth quarter of 2025. Policymakers will continue to push for the full transmission of the 100 basis-point rate cuts made throughout this year into the economy.

FDI Expected to Recover in the Wake of Interest Rate Cuts & Rupiah Stabilisation

Indonesia’s bond yields are declining alongside expectations of interest rate cuts. The trend is supported by an oversubscription of Bank Indonesia's Rupiah Securities (SRBI), liquidity surplus, and investor interest in high-yield instruments. Bond demand is concentrated in short to medium tenors, while 10-year bond yields have also declined despite underperforming bonds of shorter tenors.

This movement reflects the bond market's response to expectations of a more accommodative monetary policy and adequate liquidity conditions in the domestic market. These conditions have opened up room for Bank Indonesia to adjust its interest rate policy in keeping with economic developments.

Complementing this positive outlook, DBS Group Research Equities Specialist Maynard Arif said the Indonesian stock market is showing an interesting shift towards quality big cap stocks that are considered more resistant to global volatility. Although the LQ45 and IDX30 indices have until July 2025 underperformed the broader index, current market valuations remain relatively attractive compared to other Asian countries, opening up opportunities for investors seeking stability and growth potential.

Foreign direct investment (FDI), which has slowed, is expected to flow back into the domestic market in the second half of this year, in line with expectations of further interest rate cuts and stabilisation of the rupiah exchange rate. However, investors are advised to remain vigilant against potential short-term volatility that may arise due to global monetary policy dynamics and geopolitical risks.

USD/IDR Predicted to Consolidate

The USD/IDR movement has shown a significant correction in the last two months after reaching the peak of the price channel on the back of global market developments and sentiments on US monetary policy. In response to this phenomenon, DBS Group Research predicted that in the short term, the USD/IDR exchange rate will consolidate, reflecting market stabilisation as well as adaptation to expectations of the Fed interest rate cuts and Indonesia's domestic economic conditions.

Strategies for Dealing with USD/IDR Dynamics with DBS Global Financial Markets

To help investors and market participants navigate the global economic uncertainty, DBS Global Financial Markets offers adaptive and integrated financial solutions. With in-depth market analysis, investment advisory services, and access to a wide range of global financial instruments, GFM helps clients manage the risk of interest rate, exchange rate, and trade tariff fluctuations. This approach supports more informed and sustainable investment strategies, enabling market participants to capitalize on opportunities amid international economic dynamics.

“The current movement of USD/IDR reflects complex global market dynamics and investor response to US monetary policy. Using the right strategy, customers can be better prepared to face volatility and take advantage of emerging opportunities,” said  Executive Director & Head of Sales Global Financial Markets at PT Bank DBS Indonesia Muchammad Suryanatakusumah.

For further information, please visit the following pages:

Global Financial Markets

Insights on ASEAN-6 2025-40: The next leap

 

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