Global Yields Pressure Domestic Market: Here's the Government's Strategy to Safeguard the Economy in 2027

The Governor of Bank Indonesia (BI) is paying full attention to the surge in global bond yields that is pressuring the domestic financial market. BI Governor emphasized that this spike in global bond yields reflects an era of global interest rates that tend to remain high for an extended period, or "higher for longer," triggered by global uncertainty.

Global turbulence is also putting pressure on the domestic financial market. The yield on 10-year Government Securities (SBN) increased to 7.229%, while the rupiah exchange rate weakened by approximately 0.2% against the US dollar. This pressure occurred after the United States launched another strike against Iran, which drove up oil prices and global bond yields, as well as increased investors' tendency to avoid risky assets, including assets in emerging markets.

Amidst rising global economic uncertainty and pressure on the domestic financial market, the Government and Commission XI of the House of Representatives (DPR) agreed on several macroeconomic assumptions as the foundation for drafting the 2027 State Budget (RAPBN). The agreement includes an economic growth target of 6%, an inflation rate of 2.5%, an exchange rate of Rp17,500 per US dollar, and a Government Securities (SBN) interest rate of 6.9%.

In addition to the macroeconomic assumptions, the Government and Commission XI of the DPR also agreed on the state revenue target and the 2027 RAPBN deficit. The Government targets state revenue at Rp3,426 trillion with a deficit of Rp671.2 trillion, equivalent to 2.4% of the Gross Domestic Product (GDP). The determination of these assumptions took into account global and domestic economic developments, including various opportunities and risks that could potentially affect national economic performance.

In the midst of efforts to maintain national economic stability, the government is also paying attention to the liquidity conditions of the financial system through the management of the Excess Budget Balance (SAL). The Minister of Finance emphasized that the SAL cannot be utilized without first obtaining the approval of the DPR RI. The government will also coordinate with Bank Indonesia prior to withdrawing funds to maintain liquidity conditions and avoid the risk of a liquidity shock caused by sudden withdrawals.

Currently, the government has extended the placement of funds in the banking system until July 2027, with total government funds placed in the financial system reaching Rp200 trillion. According to the Minister of Finance, this policy has had a positive impact on banking liquidity conditions and contributed to supporting credit growth, which was last recorded at 13.8%. This well-maintained liquidity condition is considered to have the potential to boost credit growth to over 20%, as well as support the growth of the private sector and the national economy.

The combination of global financial market volatility and the government's measures to maintain fiscal stability and domestic liquidity has direct implications for business actors and investors. The increase in the 10-year SBN yield to 7.229% has the potential to raise funding costs in the financial market. However, the placement of Rp200 trillion in government funds within the banking system is expected to help maintain adequate liquidity and support credit distribution to productive sectors.

Going forward, the synergy between Bank Indonesia's monetary policy and the government's fiscal policy will be a crucial factor in maintaining national economic resilience amidst global uncertainty. For businesses and investors, developments in interest rates, exchange rates, and liquidity conditions must be continuously monitored when making business and investment decisions, including through the implementation of appropriate risk mitigation strategies against potential market fluctuations.