Indonesia: Year-end fiscal fireworks – Nomura

FXStreet (Barcelona) - The Research Team at Nomura note that the Indonesian government announced a new fuel subsidy system in the last day of the year to counter lower inflation concerns, further anticipating the CPI to come at 7.5%yoy in January.

Key Quotes

“The Indonesian government announced a new fuel subsidy system today, fixing the subsidy for diesel at IDR1,000/litre and removing the gasoline subsidy. Diesel and gasoline prices will fall by an average of 7% in January.”

“In our view, these are significant fiscal steps which should help lower inflation but also importantly, permanently reduce fiscal risks and yield substantial savings to finance more productive public spending.“

“We revise our CPI inflation estimate in January to 7.5% y-o-y from 8.0%, and as a consequence, we no longer expect the BI to hike at its next meeting.“
“That said, some questions remain, chief of which is the uncertainty around whether parliament will be supportive of the new system.“