● Indonesia's headline inflationslowedmarginally to 2.96% YoY in March (Feb: 2.98%), in line with consensus and remained well within Bank Indonesia's (BI) inflation target band of 2.0-4.0%

- MoM: further slowed to 0.10% versus 0.28% in January.

- Core inflation: edged up to 2.87% YoY (Feb: 2.76%).

● The slower inflation was weighed by a further contraction of the transport index and the impact of the pandemic

- Transportation (-1.09% YoY; Feb: -0.31%): it fell further in the absence of demand in light of escalating coronavirus outbreak.

- Food, beverage, and tobacco (6.15% YoY: Feb: 6.02%): slightly higher on YoY basis but moderated sharply on MoM to 0.1% (Feb: 0.95%) signalling a subsiding demand going forward.

● Mixed inflationary trend across advanced economies

- US: Core PCE Prices, the Fed's preferred gauge of inflation, rose to 1.8% in February (Jan: 1.6%) and remained below 2.0% target.

- UK: inflation moderated to 1.7% in February from a six-month high of 1.8% in the preceding month due to lower fuel cost.

● 2020 CPI forecastrevisedto3.1% fromaninitialtargetof 3.4% due to slowergrowth and lower oil price(consensus: 3.3%; 2019 revised: 2.72%), and another rate cut soon a possibility

- BI cut its key rate twice this year to 4.5% in a bid to counter the worsening impact of COVID-19 on the economy while trimming down its economic growth projection for the second time to a new range of 4.2-4.6%. Meanwhile, the Finance Minister Sri Mulyani Indrawati said the economy is projected to grow by 2.3% this year from an initial estimate of 5.3% while in a worst-case scenario at -0.4%.

- As growth is undergoing a severe impact of the pandemic, another rate cut is deemed necessary to cushion its impact on the economy. However, a recent sharp depreciation of the Rupiah, which currently trades at its lowest level since the 1998 financial crisis, may not give BI a strong reason to continue monetary easing. Nevertheless, the house view that BI still has room to cut rates at its upcoming Board of Governor meeting on April 14th, joining the global efforts to combat the pandemic impact on the economy.

Source: Kenanga Research - 2 Apr 2020