On 14 December 2014, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve economic matters such as the central bank’s interest rate policy, an update on palm oil, the middle income trap, November car sales, the performance of the rupiah exchange rate, legal matters regarding mining, and more.

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Indonesia’s central bank decided to keep its benchmark interest rate (BI rate) at 7.75 percent at Thursday’s Board of Governors’ Meeting (11/12). The Lending Facility and Deposit Facility were kept at 8.00 percent and 5.75 percent, respectively. The central bank is convinced that the current interest rate levels are effective to combat short-term inflationary pressures (triggered by the implementation of higher subsidized fuel prices in mid-November) pushing it back to the target corridor of between 3 and 4 percent (y/y) in 2015.

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On Monday morning (08/12), the Indonesian rupiah exchange rate quickly plunged after the release of weak macroeconomic data from Japan and China, two important trading partners of Indonesia. Economic growth in Japan, the world’s third-largest economy, contracted 0.5 percent (quarter-to-quarter) in Q3-2014, while Chinese imports fell 6.7 percent (year-on-year) in November 2014. As a result the Indonesian rupiah had depreciated 0.54 percent to IDR 12,365 per US dollar by 11:30 am local Jakarta time, the weakest level in six years.

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On 7 December 2014, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve economic matters such as the country’s November inflation, October trade balance, a manufacturing update, the slight improvement in the Corruption Perceptions Index, investments, IPOs on the Indonesia Stock Exchange, and more.

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The central bank of Indonesia announced that the country’s foreign exchange reserves declined USD $900 million to USD $111.1 billion at the end of November 2014. The decline was primarily due to government debt repayments and the central bank’s use of foreign exchange to engage in monetary management. Meanwhile, the Indonesian rupiah exchange rate - which had touched six year lows in recent days - appreciated 0.08 percent to IDR 12,299 per US dollar on Friday (05/12) based on the Bloomberg Dollar Index.

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Based on the Bloomberg Dollar Index, Indonesia’s rupiah exchange rate depreciated 0.24 percent to IDR 12,301 per US dollar on Wednesday (03/12), the weakest level of Indonesia’s currency in almost six years, as the US dollar rallied, pushing Japan’s yen to a seven-year low, Malaysia’s ringgit to a five-year low, while the Russian ruble experienced record falls. Meanwhile, the euro touched a two-year low amid the sluggish economic growth forecast in the Eurozone. Policies of central banks across the globe have led to significant currency volatility.

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The HSBC Markit Purchasing Managers’ Index (PMI) of Indonesia contracted to 48.0 in November 2014 (from 49.2 in the previous month), the weakest level since reporting began in early 2011 amid weak demand and higher fuel prices, official data showed on Monday (01/12). A reading below 50.0 indicates that manufacturing activity has contracted. Su Sian Lim, Economist at HSBC, said that the recent subsidized fuel price, rupiah depreciation, and weak external demand were the key drivers for this poor performance.

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Main news headlines in Indonesia still cover the higher subsidized fuel prices implemented starting from the early hours of Tuesday (18/11). The previous evening, Indonesian President Joko Widodo had announced that prices of subsidized gasoline and diesel were to be raised by over 30 percent, immediately leading to long queues at local gas stations as well as public outcry as people’s purchasing power will diminish. Analysts and economists, however, agree that this move is correct and can lead to structurally higher GDP growth.

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Indonesian President Joko Widodo announced yesterday evening (17/11) that prices of subsidized fuels will be raised by over 30 percent starting from midnight in an effort to reduce state expenses on non-productive matters. Low-octane gasoline (premium) will now cost IDR 8,500 (USD $0.70) per liter, while diesel now costs IDR 7,500 (USD $0.62) per liter. This sudden announcement immediately led to long queues at local gas stations as people still had three hours to enjoy cheaper fuel rates.

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Global rating agency Fitch Ratings affirmed Indonesia’s Sovereign Credit Rating at BBB-/stable outlook (investment grade status) on Thursday (13/11). This rating affirmation by the credit rating agency can be regarded as international recognition of prudent fiscal policy in Southeast Asia’s largest economy amid global uncertain times. Policy responses pursued by both the government and central bank of Indonesia have been well received by Fitch Ratings and managed to safeguard economic stability.

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Although Indonesian Finance Minister Chatib Basri provided positive news to the market by stating that the country's trade deficit (and co-related current account deficit) will probably not be as large in the second quarter of 2014 (as compared to the same quarter in 2013) as well as an expected increase in Indonesian banks' consumer credit, the benchmark stock index (known as Jakarta Composite Index or IHSG) was unable to rise on Wednesday's trading day (04/06). Particularly local investors were eager to sell their Indonesian shares.

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The Indonesian rupiah exchange rate continued to depreciate further on Wednesday (04/06). According to the Bloomberg Dollar Index, the currency of Indonesia had weakened 0.38 percent to IDR 11,855 per US dollar by 15:00pm local Jakarta time. The depreciation occurred due to US dollar demand from local importers for payments and renewed concern about the country's trade balance. Today's performance of the rupiah is in line with the performance of other Asian currencies as investors return to the US dollar on higher US yields.

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Supported by enthousiastic foreign investors, the benchmark stock index of Indonesia (Jakarta Composite Index or also known as IHSG) managed to climb 0.61 percent to 4,942.16 points on Tuesday (03/06). Particularly consumer, trade and mining stocks were popular on today's trading day. It is interesting to note that this growth happened amid sharp rupiah depreciation as the currency still feels the negative impact of the USD $1.97 billion April 2014 trade deficit that was released yesterday (02/06).

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Although initially the benchmark stock index of Indonesia (known as Jakarta Composite index or IHSG) fell after the market responded to today's release of Indonesia's April trade deficit and May inflation, the index ended in the green zone due to foreign net buying and general positive Asian indices (influenced by higher stock indices on Wall Street at the end of last week). Particularly Indonesia's big cap stocks in the miscellaneous industry and consumer sectors were popular as these were relatively cheap after having tumbled at the end of last week.

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The Indonesian rupiah exchange rate depreciated 0.77 percent to IDR 11,766 per US dollar on Monday (02/06) based on the Bloomberg Dollar Index. From the start of trading the currency of Southeast Asia's largest economy immediately plummeted as market participants anticipated a trade deficit in April 2014. Last Friday, the central bank of Indonesia (Bank Indonesia) announced that it expects Indonesia to post a deficit in April, whereas earlier statements of the central bank had mentioned a slight surplus.

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Asian stocks declined on Friday's trading day (30/05) after a government report showed that the US economy - the world's largest economy - shrank by one percent (year-on-year) in the first quarter of 2014, the country's first contraction since early 2011. The contraction was far worse than the initial forecast at 0.1 percent. The main cause of the contraction was the severe winter that hit the USA. The benchmark stock index of Indonesia (Jakarta Composite Index) fell 1.84 percent to 4,893.91 points on Friday (30/05).

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Based on Bank Indonesia's benchmark rupiah exchange rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR), the Indonesian rupiah exchange rate depreciated 0.44 percent this week. Although Asian currencies have been largely supported by renewed capital inflows as investors are optimistic that central banks across the globe continue to provide stimulus to boost local economies, the rupiah has been under pressure due to various domestic issues. These issues include politics as well as fuel subsidies.

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The Indonesian rupiah exchange rate continued its recent depreciating trend on Wednesday (28/05). According to the Bloomberg Dollar Index, the currency had depreciated 0.46 percent to IDR 11,633 against the US dollar at the end of the trading day. The rupiah's performance is in line with the general trend in Asia where most currencies lost ground to the greenback on today's trading day. As various US economic data indicate a continued recovery of the US economy, the market expects more US monetary tightening.

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The Indonesian rupiah exchange rate continued to depreciate further on Monday’s trading day (26/05). Based on the Bloomberg Dollar Index, the currency of Indonesia had depreciated 0.17 percent to IDR 11,595 per US dollar by 1pm local Jakarta time. On Monday morning the US dollar was strengthening against most emerging currencies in Asia. Meanwhile, the central bank's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.63 percent to IDR 11,633 against the US dollar.

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On the last trading day of the week, the benchmark stock index of Indonesia (known as the Jakarta Composite Index of IHSG) rose 0.06 percent to the level of 4,973.06 points. Trading volume was low as investors are still carefully monitoring political and economic developments in Indonesia. Earlier in the week, political uncertainty increased when the country's second-largest political party (Golkar) decided to join the coalition that supports the Prabowo Subianto and Hatta Rajasa pair in the July presidential election.

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