Indonesia's manufacturing output up in September

Another rate cut is likely amidst low inflation.

Manufacturing activity continued to expand in September, with Markit's manufacturing PMI rising to 50.9 from 50.4 in August.

New export orders increased at their fastest pace since November 2012, while new orders expanded at a more moderate pace. It hit a 46-month high in September, rising to 52.9 from 50.6. HSBC notes that this marks a welcome turnaround: new export orders had contracted from October 2014 until July of 2016.Panellists reported higher demand from both domestic and international clients.

"Although companies noted "an improvement in overall global demand, there were particular mentions of Europe being a key source of new work, said HSBC.

Encouragingly, employment and quantity of purchases increased. Input price gains outstripped the rise in output prices, implying margin pressures for manufacturers.

According to HSBC, the increase in output was partly supported by fall in "unfinished work", as backlogs of work declined for their 28th straight month. However, suppliers' delivery times lengthened marginally in September, likely due to logistical issues and traffic congestion.

Still, with inflation remaining below Bank Indonesia's 3-5% target, and growth continuing to be relatively tepid, HSBC sees room for another 25bp rate cut in 4Q16, taking the 7-day reverse repo rate to 4.75%.

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