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Indonesian economy: Room for lower rates

Capital flows into emerging market improved last month on the back of The Fed’s dovish stance. 10-year US T-bills yield edged down to 2.04% while the curve flatten together with continued lower government bond yields worldwide supported by weak US data, possible EU stimulus in December and China’s rate cut.
Coupled with economic slowdown and global deflation concerns, the average inflation in Asian and major economies keep decreasing as growth has continued to stall. As consequence, some Asian nations already cut their interest rates.
For Indonesia, we expect current low inflation to continue and we expect some mild -0.03% deflation in October or 6.3% y-y inflation supported by lower prices of electricity, rice and exchange-rate pass through effect. This has us cutting our year-end inflation target to 4.2% from 4.8% previously.

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