November inflation stood at 5.42% (y.o.y), continuing its deceleration pattern in the last three months. A combination of seasonal events as well as impact of inflation controlling efforts by the government and central bank has resulted in a sooner-than-expected inflation peak and more benign inflation rate towards the end of 2022. On the other hand, anticipated rate hike ease by major central banks has triggered surge of capital flows into emerging markets, including Indonesia. Since mid-November, net capital inflow to Indonesia has amounted to around USD2.12 billion, strengthening Rupiah to around IDR15,500 and driving down yields for both 10-year and 1-year Indonesian government bonds to 7.02% and 5.49%, respectively. Thus, we see that BI should ease its hawkish stance and hike policy rate by 25bps this month to 5.50%.

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