Indonesian stocks declined more than expected during the first trading session on Tuesday (09/06). The benchmark Jakarta Composite Index plunged 3.12 percent to 4,858.31 points amid heightened expectation of a US interest rate hike as well as worries about the Greek debt situation in the Eurozone. The performance of other Asian stock indices was mixed on Tuesday morning with Shanghai, Singapore and South Korea showing modest gains, while New Zealand, Hong Kong, Malaysia and Taiwan were down marginally.

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On 7 June 2015, 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 subjects such as Indonesia’s May inflation and manufacturing activity, updates on the rupiah & Indonesian stocks, new initial public offerings (IPOs) on the Indonesia Stock Exchange, poverty, consumer confidence, and more.

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The latest Consumer Confidence Index, compiled by the central bank of Indonesia (Bank Indonesia) shows that Indonesian consumers have become more optimistic about their economic prospects in May 2015. The index rose to 112.8 points in May, up 5.4 points from the preceding month (a score higher than 100.0 signal consumer optimism). It was the first time this year that Bank Indonesia’s Consumer Confidence Index, which is based on a sample of 4,600 household in 18 major Indonesian cities, increased.

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In line with other stock indices in Southeast Asia, Indonesia’s benchmark stock index (Jakarta Composite Index) has been weakening since the start of trading on Wednesday (03/06). Yesterday’s weakening indices on Wall Street, concern about rising bond yields, worries about the possibility of a default by debt-ridden Greece, and weak macroeconomic data from Indonesia have all contributed to the negative performance of Indonesian stocks so far today. By 11:15 am local time, the Jakarta Composite Index had fallen 1.42 percent.

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Inflation in Indonesia accelerated higher than expected in May 2015. Based on the latest data from Statistics Indonesia (BPS), announced today, Indonesia’s consumer price index rose to 7.15 percent (y/y) in May, from 6.79 percent (y/y) in the preceding month. The primary reason for higher inflation is rebounding oil prices thus causing higher prices at fuel pumps. As fuel subsidies have been largely cut at the start of 2015, the recent rising global oil prices now cause serious inflationary pressures in Indonesia.

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Satu bulan menjelang bulan suci Ramadan, harga bahan makanan telah mulai naik. Sudah menjadi fenomena tradisional bahwa menjelang Ramadan (dan selama bulan ini dan dilanjutkan dengan perayaan Idul Fitri) inflasi memuncak karena orang-orang Indonesia menghabiskan lebih banyak uang untuk produk makanan (untuk berbuka puasa di malam hari setelah puasa berakhir setiap harinya) dan produk konsumen lainnya seperti pakaian dan sepatu. Meskipun begitu, beberapa kekuatiran telah muncul karena Peraturan Presiden tentang kontrol harga belum diterbitkan.

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In order to avert a spike in inflation and social unrest, Indonesian President Joko Widodo may feel forced to allow around 1.5 million metric tons of rice imports in 2015 as domestic prices of rice have been rising on sluggish local harvests. Moreover, an intensifying El Nino is expected to cause dry weather in the months ahead hence further jeopardizing rice productivity. These already tough conditions will be exacerbated by seasonal Islamic celebrations (Ramadan and Idul Fitri) that always trigger increased consumption of food products.

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Bank Indonesia menunjukkan komitmennya pada kebijakan moneter yang relatif ketat karena tidak mengubah suku bunga dalam Pertemuan Dewan Gubernur bulan Mei. Meskipun ada tekanan-tekanan dari pemerintah dan para pelaku bisnis untuk memotong suku bunga (yang akan mendongkrak pertumbuhan ekonomi), Bank Indonesia mempertahankan suku bunga BI yang menjadi acuannya pada 7,50%, overnight deposit facility pada 5,50% dan lending facility rate pada 8,00%.

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The central bank of Indonesia (Bank Indonesia) is currently dealing with a dilemma. On the one hand, its relatively high interest rate environment (with the benchmark BI rate at 7.50 percent) is partly responsible for the country’s slowing economic growth as credit expansion is curtailed and economic activity declines. On the other hand, Bank Indonesia’s high BI rate is needed to safeguard Indonesia’s financial stability as inflation is still above the central bank’s target, the current account deficit nearly unsustainable, and capital outflows loom.

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Pada 10 Mei 2015, Indonesia Investments menerbitkan edisi terbaru dari newsletter-nya. Newsletter gratis ini, yang dikirimkan kepada para pelanggan kami sekali setiap minggunya, mencakup berita-berita paling penting dari Indonesia yang telah dilaporkan di website kami dalam tujuh hari terakhir. Kebanyakan topik berkaitan dengan isu-isu ekonomi seperti update pertumbuhan ekonomi Indonesia pada kuartal 1 tahun 2015, inflasi April, aktivitas manufaktur domestik, bea cukai minyak sawit yang baru, penjualan mobil, angka pengangguran, industri telepon selular, dan banyak lagi.

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The first day of the month - in case of a working day - implies that investors can count on the release of several macroeconomic data from Indonesia, specifically inflation and manufacturing activity. Statistics Indonesia (BPS) announced this morning (01/06) that Indonesia's consumer inflation reached 0.24 percent (m/m), or 3.33 percent (y/y), in May 2016. Meanwhile, the Nikkei Indonesia Manufacturing Purchasing Managers' Index (PMI) eased to a reading of 50.6 in May from 50.9 one month earlier. Lets take a closer look at these data.

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The central bank of Indonesia (Bank Indonesia) expects to see deflation in April 2016 on the back of controlled food prices as the harvest season has arrived. Bank Indonesia Governor Agus Martowardojo said a central bank survey shows deflation of 0.33 percent month-to-month (m/m) during the first three weeks of April. Besides lower food prices, Martowardojo also attributes April deflation to the government's decision to cut fuel prices (premium gasoline and diesel) by IDR 500 (approx. USD $0.04) per liter per 1 April. This move led to a 4 percent drop in public transportation tariffs.

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The central bank of Indonesia (Bank Indonesia) announced on Friday (15/04) it will adopt a new monetary tool per 19 August 2016 that is to replace the existing BI rate which is considered too inefficient to influence market liquidity as it is not directly tied to Indonesia's money markets. The seven-day reverse repurchase rate (reverse repo), which stood at 5.50 percent in the central bank's last auction, is to become the nation's new benchmark. Bank Indonesia Governor Agus Martowardojo, who communicated through a teleconference from Washington DC, emphasized that the central bank will not change its monetary stance.

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To assess Indonesia's purchasing power and consumer confidence it is always useful to take a look at car and motorcycle sales because when people are confident about their financial situation and have enough money to spend then they tend to buy cars and motorcycles (motorcycles are particularly popular among Indonesia's huge middle to lower-middle class segment). Meanwhile, cement sales inform about property and infrastructure development. Property development is also closely related to purchasing power and consumer confidence because property development grows when people's demand for property rises.

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The central bank of Indonesia (Bank Indonesia) expects to see deflation at 0.15 percent month-to-month (m/m) in February 2016. Bank Indonesia Governor Agus Martowardojo said lower (government) administered prices in combination with low core inflation will be the recipe for deflation in the second month of the year. The lower administered prices that are primarily the cause of deflation consist of fuel prices, air fares and 12-kilogram liquefied petroleum gas (LPG) canisters. In the first month of the year Indonesian inflation accelerated to 4.14 percent (y/y).

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Tomorrow (05/02), Statistics Indonesia is scheduled to release Indonesia's official full-year 2015 economic growth figure. Nearly all analysts expect to see a figure that reflects the continuation of slowing economic growth. Southeast Asia's largest economy expanded 5.0 percent in 2014 and this is expected to have eased further to 4.7 percent or 4.8 percent in 2015 on the back of (interrelated) sluggish global growth, low commodity prices, and weak export performance. Domestically, Indonesia has or had to cope with high interest rates and inflation (hence curtailing people's purchasing power and consumption as well as business expansion).

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New York-based financial services firm Standard & Poor's stated that Indonesia's banking industry will feel the negative impact of Indonesia's sluggish economic growth in combination with persistently low commodity prices next year. This combination may weaken profitability of the nation's banking industry. S&P puts Indonesia's economic growth in 2016 at 5 percent (y/y), below the International Monetary Fund's and World Bank's forecast as well as the central government's target, all at 5.3 percent (y/y).

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Hari ini, Bank Dunia menerbitkan edisi terbaru dari publikasi andalannya Indonesia Economic Quarterly berjudul “Reformasi di Tengah Ketidakpastian". Dalam edisi ini, lembaga yang bermarkas di Washington ini menyatakan bahwa kondisi global masih tetap tidak menguntungkan meskipun kondisi pasar keuangan telah stabil sejak Oktober. Sementara itu, Indonesia terkena dampak negatif dari kebakaran hutan dan kabut asap beracun akibat perbuatan manusia yang merugikan Indonesia kira-kira Rp 221 triliun (atau 1,9% dari produk domestik bruto negara ini) dalam waktu lima bulan.

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After having experienced two consecutive months of deflation in September and October, Indonesia is expected to see inflation again in November, primarily on higher food prices (chicken meat and rice). Agus Martowardojo, Governor of Bank Indonesia, expects an inflation rate of 0.2 percent (month-on-month) in November. This would mean that inflation in full-year 2015 is likely to reach 3 percent (y/y), in line with earlier estimates and within - or perhaps slightly below - Bank Indonesia's target range of 3 - 5 percent (y/y) of inflation in 2015.

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The central bank of Indonesia (Bank Indonesia) is expected to keep its benchmark interest rate (BI rate) relatively high in order to safeguard Indonesia's financial stability in 2016 (instead of seeking accelerated economic growth through a rate cut). Despite easing pressures on inflation and the country's current account balance, Bank Indonesia Governor Agus Martowardojo said that persistent global uncertainty (referring to the looming US Fed Fund Rate hike and China's slowdown) justifies the tight monetary stance.

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