Malaysia CPI (Wed) is expected to fall to 1.8% from 2.0%. We expect one more rate cut in this cycle (link) as the growth picture is not encouraging. Consumer prices rose 2.0 pct YoY in May of 2016, compared to a 2.1 pct gain in April and matching market estimates.

It was the lowest inflation figure since April 2015 as prices of food and housing & utilities eased while the cost of transport fell further.

While credit is slowing, sentiment (manufacturing and consumer) is weakening, and fiscal policy is constrained.

There could be heightened market volatility around the Bank Indonesia rate announcement (Thu). Consensus favours no change, but five of the economists (out of 14) in the Bloomberg survey expect a rate cut at this meeting (SG expects a 25bp rate cut).

Lower yields have drawn capital into Indonesia with MTD bond flows standing at $500mn after $1.7bn of inflows in June.

The IDR is our favourite carry trade in Asia after the INR lost its lustre with the impending departure of Rajan from the RBI. Well, on hedging grounds it is advisable to stay short USDIDR in 2m forwards and in MYRIDR as well while initiating longs in mid-month futures of USDINR.