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Indonesia's December CPI dropped to 3.35% YoY on a sluggish growth, last seen in December 2009. As the economy decided to increase the domestic retail prices of diesel and gasoline in December 2014 with a motive of drastically cutting its weakening petroleum subsidy, the Headline inflation dropped sharply than the market's expectations. The central bank has adequate monetary policy space, as Headline inflation is currently well within its target of 4±1 percent.
Bank of Indonesia was all set for a rate cut in December 2015; however, with Feds rate hike and further weakening of the currency, the central bank remained on hold. With the next Fed rate hike likely scheduled in March, BI sees an adequate window of opportunity for a rate cut, which is expected to put the economy back on track.
"The Bank Indonesia to opt for a rate during the first monetary policy meeting in 2016"- Societe Generale
