Indonesia's inflation roll-down begins

Indonesia's November inflation dropped to 4.9%, almost similar to the consensus expectations of 4.85%. On a month on month basis, there is an increase in prices by 0.21%.

This sharp fall in inflation was supported by last year's high base rate, as the fuel subsidy cut led the gasoline prices upside around 31%. For the first time since September 2014, the headline inflation fell back in Bank of Indonesia's target range of 3-5%.

"We believe the improvement in inflation trajectory has opened up room for further rationalization of electricity tariffs - with the state utility announcing an 11% electricity tariff increase for small users in December, a move that will reduce the IDR10tn in electricity subsidies", says Barclays in a research note. 

This downfall also paves way for monetary policy easing ahead, consistent with the central bank's move on 17 November, while lowering its RRR to 7.5% from 8%, to ease policy stoking bond and volatility in the currency.