Bank Indonesia rate cut still hinge on currency stability

Indonesia's September's headline inflation edged lower to 6.9% y/y from 7.2% in August. The CPI inflation to decline towards Bank Indonesia (BI)'s target of 3-5% by year-end. This is due to the favourable base effect from last year and the subsiding of the fasting period (June-July) effect. 

This would leave BI with some room for a 25bps rate cut from the current 7.5% by year-end. However, much will be dependent on IDR stability given that it has fallen 16% against the USD on a year-to-date basis, making it the second worst performing currency in Asia after MYR (-21%). For USD-IDR, it opened higher by 0.13% this morning to 14,710. 

"The currency pair USD-IDR remains to the upside, but we see BI being less tolerant of a weak IDR and stepping in to mitigate the rise", says Commerzbank.