Bank of America: Indonesia's energy subsidies may help cushion inflation

Bank of America's Kai Wei Ang and Rahul Bajoria wrote that Indonesia's energy subsidies may help to suppress inflationary pressures by limiting the transmission of global oil price increases to consumers. They estimate that inflation may slow from 4.76% in February to 3.4% in March, and then fall below 3%, remaining at that level for the remainder of 2026. The sustained Brent crude oil prices above $70 per barrel may put pressure on the fiscal deficit target of 2.68% of GDP. These economists estimate that for every $10 increase in oil prices, the deficit will expand by 680 trillion Indonesian rupiah, and note that if Brent crude oil prices average $85 per barrel from March to December, the 3% upper limit may be breached. They added that lifting the price cap on subsidized gasoline would be a last resort. Amid global uncertainties, the Indonesian central bank may prioritize the stability of the Indonesian rupiah, assuming the Fed cuts rates twice, the central bank may cut rates once to 4.50% in the second half of the year.