VIEW: JP Morgan Expects June Headline CPI In Band

Indonesian CPI inflation was lower than expected in May and down on April. Headline CPI rose 4% y/y down from 4.3% the previous month, the top of the target band, and core was 2.7% down from 2.8%.

• “Both core and headline inflation have been slowing in trend sequential terms as broadly expected. This in part owes to supply side reforms undertaken in recent years which has had a notable impact on food prices.”
• “… we expect that June CPI – forecast at 3.6%oya - should come in below the upper bound of the target range.”
• “Despite the benign path of core inflation, our modal view is for Bank Indonesia to maintain its policy rate at 5.75% through this year, reflecting the expected narrowing of its current account balance and external uncertainties.”
• “That being said, the interest rate differential between BI’s deposit taking rate (FASBI) and the effective Fed funds rate has turned negative. Despite the narrowing interest rate differentials, US$/IDR has strengthened this year and owes to a solid balance of payments position. Should this FX stability continue, there could be room for BI to ease later in the year.”