Bank Indonesia kept its 2026 growth forecast at 4.9%–5.7% and left its inflation target at 1.5%–3.5%. It sees inflation risks as tilted to the upside. If the economy runs hotter and the output gap narrows, the rupiah could weaken. Demand at recent bond auctions has softened. The 18 February auction posted a 10‑year bid‑to‑cover ratio of 1.71x, the lowest since March 2025 and below the 2024–2025 average. The 5‑year tenor saw a bid‑to‑cover ratio of 1.47x, the lowest since May 2024.

Rising Yields And Rupiah Pressure

A model assessment says 10‑year government bonds look overvalued versus macro fundamentals. Technical signals also point to higher yields. This combination adds pressure on the rupiah and makes Bank Indonesia’s policy decisions harder as it considers gradual easing. SRBI outstanding has increased on a net basis since November 2025. SRBI yields are up by about 11–14bp since September last year. Non‑resident inflows into SRBI have picked up slightly since December, and have partly offset foreign outflows from equities and government bonds. Bank Indonesia is keeping its 2026 growth forecast at 4.9% to 5.7%, but inflation is the bigger focus. In January 2026, headline inflation rose to 3.6%, moving just above the top of the 1.5%–3.5% target range. If the economy overheats, price pressure could increase further and become a clear headwind for the rupiah. The government bond market is already under strain, which creates a clear trading signal. At the 18 February auction, the 10‑year bid‑to‑cover ratio fell to 1.71x. That is a weak result and extends the softer demand seen in late 2025. With 10‑year yields around 6.8%, yields could rise as prices fall.

Trading Implications For Rates And FX

Since models suggest 10‑year bonds are overvalued, derivatives traders may want strategies that benefit from higher Indonesian yields. This can include interest rate swaps or options, positioned for a move toward 7.0% in the coming weeks. In our view, current bond prices do not fully reflect higher inflation risk and weaker foreign demand. These local pressures may also weigh on the rupiah, which can make short rupiah positions more appealing. With USD/IDR near 16,100, continued bond outflows could push the pair toward the 16,350 resistance level last tested in October 2025. Buying USD/IDR call options can be a way to express this view while limiting downside risk. Bank Indonesia’s SRBI has drawn modest foreign inflows since December, helped by higher yields. This has given the rupiah a small buffer against outflows from government bonds and equities. Still, the SRBI inflows are not large enough to change the broader bearish tone. Create your live VT Markets account and start trading now.

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