Indonesian October inflation data is set to release tomorrow. According to a DBS Bank research report, the headline inflation is likely to have eased to 3.2 percent year-on-year from prior month’s 3.4 percent, owing to the moderating rice price and slower economic activity.
Monetary aggregate has accelerated as Bank Indonesia embarked on a more accommodative monetary policy in 2019. The central bank lowered its policy rate by 100 basis points to 5 percent so far, relaxed several macroprudential policy tools including easing the Loan-to-deposit ratio for house mortgage and loan-to-finance ratio for automotive financing.
In spite of recent policy rate cuts, lending growth has not accelerated significantly as investment activity softened in line with slower government projects activities. Investment indicators show signs of further softening in 2019: PMI index has remained below 50 for three straight months.
“Consumer gauge was weak as well, consumer confidence index has eased, and overall retail sales has decelerated. We think, weaker domestic demand until the end of this year will keep inflation at bay. Higher rice price due to drought season, might not lift inflation above 3.5 percent until EY19”, added DBS Bank.
