Stronger pro-growth policy supports. We expect GDP growth to edge up to 5.2% in 2026 from an estimated 5.0% in 2025. We expect growth momentum to continue improving in 2026 under a more expansionary fiscal stance. Monetary easing, which became more meaningful this year, will likely have a greater impact next year as transmission progresses. The capex cycle is also expected to improve alongside easier policy and reduced policy and regulatory uncertainty, although the recovery will be gradual. However, we expect a smaller contribution from net exports as U.S. tariffs cause a stronger drag.
More aggressive fiscal spending. We forecast a fiscal deficit of 2.8% of GDP, slightly higher than the 2.7% in the budget, reflecting a sizeable revenue shortfall given the very ambitious target. We also expect fiscal spending to be less backloaded in the absence of large budget reallocations. With a more flexible fiscal regime where slow-moving posts can be easily reallocated disbursement is likely to be more evenly distributed. The MOF is also expected to maintain a low level of excess cash balance, implying greater liquidity in the banking system and reduced financing needs.
Inflation picks up sharply. We forecast inflation to average 2.8% y-o-y in 2026, up from 1.9% in 2025, mainly due to the low base effect from this year s electricity tariff discount. We expect monthly average inflation of 0.3% m-o-m, only slightly higher than 0.2% in 2025. We also expect food inflation to average 3.5% y-o-y, rising from 2.9% in 2025, reflecting higher Ni o index. Core inflation is likely to pick up as purchasing power improves slightly, consistent with economic output moving closer to its potential. Meanwhile, lower global energy prices amid weak global demand should help keep imported inflation contained.
Wider current account deficit. We forecast the current account deficit to widen more meaningfully to 1.1 % of GDP in 2026 from an expected 0.6% in 2025. This mainly reflects the impact of Trump Reciprocal Tariffs, along with Indonesia s import commitments with the U.S. We also expect spillovers from Freeport s Grasberg mining site closure, which will significantly reduce copper exports. In addition, as domestic demand gradually improves, imports are expected to remain relatively sustained compared with exports, narrowing the goods trade surplus.
Rupiah remains under pressure. We expect the Rupiah to average 16,800 in 2026, reflecting 1.8% depreciation from 16,500 expected in 2025. Pressures from a wider current account deficit and a shallower Fed rate-cut cycle will likely limit Dollar weakness. However, an expected improvement in growth momentum should help cushion the Rupiah from sharp depreciation, supported by returning inflows to the stock market. Moreover, with the government s transition nearly complete, we expect local sentiment to turn less negative.
We now forecast another two BI Rate 25bp cuts. Our baseline is for BI to deliver the last 25bp cut in 1Q26 before entering a long pause, following another 25bp cut expected in 4Q25. This would bring the BI real rate to around 1.8%, close to its long-term average of 1.6%. We do not expect total liquidity injections to be larger next year, as BI will likely shift gradually toward a more pro-stability stance while still maintaining a pro-growth bias, particularly in the early part of 2026.
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