Rising Tensions Before Holiday: 11 Central Banks Meet as Budget Deficit Risk Grows
US STOCK MARKET TURMOIL
Wall Street collapsed in the final trading session of last week on Friday (13 March 2026). The market downturn followed rising oil prices as investors awaited developments regarding the Iran conflict.
The S&P 500 fell 0.61% and closed at 6,632.19, whilst the Nasdaq Composite dropped 0.93% to end at 22,105.36. The Dow Jones Industrial Average declined 119.38 points, or 0.26%, to 46,558.47.
The S&P 500 marked a new low for 2026 on Friday, recording a 1.6% decline over the week and marking three consecutive weeks of losses—the first such occurrence in approximately one year. The Dow Jones fell roughly 2% over the week whilst the Nasdaq weakened 1.3%.
MIDDLE EAST TENSIONS DRIVE OIL PRICES
Stock markets weakened further following pressure from rising oil prices. The surge followed Iran’s new Supreme Leader, Mojtaba Khamenei, declaring that the Strait of Hormuz, a critically important energy trade corridor, should remain closed as a tool to pressure adversaries.
Shipping traffic in the Strait of Hormuz has been nearly halted since the United States and Israel launched strikes against Iran in late February, leaving investors anxious about further developments in the conflict.
On Friday, however, US Defence Secretary Pete Hegseth dismissed concerns that the closure would become a prolonged problem.
STAGFLATION FEARS AND RATE EXPECTATIONS
Wall Street fears that rising oil prices could trigger stagflation—high inflation coupled with sluggish economic growth. These concerns have prompted investors to reduce expectations for interest rate cuts by the Federal Reserve this year. Trading in fed funds futures no longer anticipates rate cuts in September.
“Corporate earnings performance is actually quite solid, but market sentiment is difficult. Oil prices and equity valuations reflect the interest rate path that is now being questioned,” said David Aspell, Chief Investment Officer for Global Macro at Mount Lucas Management, to CNBC International.
BRIEF TRADING WEEK AHEAD
Trading this week will be extremely brief—just two days, Monday and Tuesday—before an extended holiday and joint leave for Eid al-Fitr from Wednesday (18 March 2026) through the following Tuesday.
Unfortunately, before the extended holiday, investors face numerous concerns about domestic and global conditions.
Global financial markets will encounter substantial sentiment shifts and critical data releases this week. The Middle East conflict and its impact on energy supply will remain the primary driver of global markets. This issue will also play a crucial role in a series of interest rate decisions from major central banks worldwide.
The primary focus this week is central bank decisions. At least eleven central banks will hold interest rate decision meetings this week, including the US Federal Reserve and Bank Indonesia.
With the Indonesian market closed amid significant global data releases, investors must carefully assess what actions to take during these two trading days.
MAJOR MARKET DRIVERS THIS WEEK:
Bank Indonesia Decision
Bank Indonesia (BI) will hold a Board of Governors Meeting (RDG) on Monday and Tuesday this week (16-17 March 2026) and will hold a press conference on Tuesday.
BI is expected to hold its benchmark interest rate at 4.75% this month to maintain rupiah exchange rate stability amid intensifying Iran tensions and rising oil prices.
BI has maintained its benchmark rate at this level since September 2025.
External Debt
BI will today announce Indonesia’s external debt data for January 2026.
Indonesia’s external debt position in the fourth quarter of 2025 (December 2025) stood at US$431.7 billion, up marginally from US$427.6 billion in the third quarter of 2025. This increase was primarily driven by the public sector.
The government’s external debt position in the fourth quarter of 2025 was recorded at US$214.3 billion, up from US$210.1 billion in the third quarter of 2025. BI attributed this increase to foreign capital inflows into international sovereign bonds, reflecting sustained investor confidence amid global uncertainty.
BUDGET DEFICIT RISKS
Rising oil prices have prompted the government to mitigate worst-case scenarios.
Coordinating Minister for Economic Affairs Airlangga Hartarto reported to President Prabowo Subianto on Friday (13 March 2026) regarding scenarios where the state budget deficit becomes difficult to maintain at 3%.
This was triggered by global geopolitical uncertainty, particularly the Middle East conflict impacting rising global oil prices and disrupting oil market supply.
Airlangga stated that all simulated scenarios indicate the state budget deficit could breach the maximum threshold established in the Law on State Finance—3% of gross domestic product (GDP).
The scenarios he employed to calculate this risk assumed the Middle East conflict would last between six and ten months, with average crude oil prices rising to US$97 per barrel or US$115 per barrel.
Airlangga outlined several scenarios based on potential changes in oil price assumptions and exchange rates. Three scenarios include:
Indonesian crude oil price (ICP) of US$86 per barrel, exchange rate of Rp 17,000 per US dollar, whilst the budget assumes an exchange rate of Rp 16,500 per US dollar, with growth maintained at 5.3% and sovereign bonds 6.8% higher, resulting in an estimated budget deficit of 3.18%.
A second moderate scenario with ICP of US$97 per barrel, exchange rate of Rp 17,300, growth of 5.2%, and sovereign bonds 7.2% higher, resulting in a deficit of 3.53%.
A worst-case pessimistic scenario with ICP of US$115 per barrel, exchange rate of Rp 17,500, growth of 5.2%, and sovereign bonds at 7.2%, resulting in a deficit of 4.06%.
“This means across these various scenarios, maintaining the 3% deficit becomes difficult unless we cut expenditure and reduce growth,” Airlangga said during a Full Cabinet Meeting at the State Palace in Jakarta on Saturday (14 March 2026).