Indonesia's inflation rate in August 2013 was 1.12 percent (month to month) according to Statistics Indonesia (BPS). This result is rather positive as many analysts projected a higher outcome for August inflation. Last month (July), inflation accelerated by 3.29 percent as the impact of higher subsidized fuel prices was felt in combination with weak government policies regarding food quotas, Muslim celebrations (Ramadan and Idul Fitri) as well as the beginning of the news school year.

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According to Indonesia's central bank (Bank Indonesia), the higher benchmark interest rate (BI rate) will slow down credit growth in the Indonesian banking sector from a current pace of 19.6 percent (after second week of August 2013) to around 18 percent. The BI rate was raised to 7.0 percent last week. Besides the BI rate, both the lending facility rate and the deposit facility rate (Fasbi) were raised to 7.0 percent and 5.25 percent respectively to support the rupiah, while curbing inflationary pressures.

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Apart from Indonesia's current account deficit, another indicator that is closely watched by the investor community is the country's inflation rate. After subsidized fuel prices were raised in late-June, inflation soared to 8.61 percent in July (YoY), weakening people's purchasing power (as domestic consumption accounts for about 55 percent of economic growth), thus eroding economic growth, investments and the currency. On Monday (02/09), Statistics Indonesia will release the official August inflation rate.

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Indonesia's central bank (Bank Indonesia) decided to raise its benchmark interest rate (BI rate) by 50 basis points to 7.0 percent on Thursday (29/08) in order to support the weakening rupiah amid slowing global economic growth. The rupiah has been on a long losing streak and has fallen to its lowest level against the US dollar in four years. The BI rate had already been raised in June and July from a historically low 5.75 percent to 6.50 percent. Today, an extra meeting was scheduled to discuss policy measures.

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Indonesia's banking sector is expected to have no difficulties in coping with current financial turmoil in Indonesia's economy. The country's banking industry is much stronger and healthier now than when the crisis in 1997-1998 or 2008 erupted. There have been reports that a few small banks have used the central bank's overnight lending facility, but various stress tests indicate that the banking sector is strong. Gross non performing loans per June 2013 have been kept below1.9 percent, which is significantly lower compared to previous periods.

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Governor of the central bank of Indonesia (Bank Indonesia) Agus Martowardojo said that the central bank will respond to current market conditions on Thursday (29/08). Bank Indonesia will have an extra board meeting to discuss measures to safeguard Indonesia's financial stability. It will touch matters such as macro-prudential policy, the interest rate and currency control. Normally, the central bank meets once per month but Martowardojo felt that this extra meeting is needed as the next scheduled meeting (12/09) is too far away.

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Indonesia's central bank (Bank Indonesia) expects that Indonesia's inflation rate in August will reach about 1.3 percent (month to month), implying that the annual inflation rate will exceed 8.9 percent (year on year) in the same month. Prices of several commodities and horticultural products are still not showing a decrease in prices. These products include beef, chicken meat and onions. Thus, Bank Indonesia requests that the central and regional governments take great care in safeguarding the country's food supplies.

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Business players in Indonesia's property sector are not happy with the government's intention to collect more tax from the sector in 2014 and onwards. The property sector has been one of the fastest growing sectors in Indonesia's economy in recent years as demand for property has surged significantly among Indonesia's expanding middle class, resulting in massive profit numbers for Indonesian property companies. Meanwhile, the government of Indonesia has been busy taking efforts to increase tax revenues.

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According to a Bank Indonesia report that was released on Monday (19/08), consumer confidence in Indonesia has weakened after the government decided to raise prices of subsidized fuels in June 2013. The country's consumer confidence index fell 8.7 points to 108¹ in July from 117 points in June. Higher fuel prices led to higher transportation costs that subsequently made many retailers increase prices of products, thus impacting on Indonesian households' purchasing power. In July, the annual inflation rate accelerated to 8.61 percent.

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Indonesia's central bank, Bank Indonesia, decided today (15/08) to keep its benchmark interest rate (BI rate) at 6.50 percent. In recent days, heavy speculation emerged about whether Bank Indonesia would raise the BI rate for the third consecutive time in three months as the country is plagued by higher inflation (8.61 percent year-on-year in July 2013) and a weakening rupiah. Reluctance to raise the interest rate again seems to indicate that the Bank gives priority to economic growth, which has slid to a three-year low at 5.81 percent in Q2-2013.

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At the Indonesia Investment Summit 2015, organized in Jakarta on 15-16 January 2015, Bank Indonesia official Arief Mahmud presented several views of the central bank on the current Indonesian economy and the global and domestic challenges that it faces. As is widely known, Indonesia has been experiencing a process of slowing economic growth since 2011 due to sluggish global economic growth in combination with the rebalancing of the domestic economy. However, growth is expected to accelerate in 2015.

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In line with the performance of other Asian emerging currencies, Indonesia's rupiah exchange rate appreciated on Monday (12/01) as the fall in US wages (released late last week) caused speculation that the Federal Reserve will - for now - delay its plan to start raising US borrowing costs. Despite solid growing US non-farm payrolls in December 2014, US wages (average hourly earnings) fell the most in eight years. Indonesia’s rupiah appreciated 0.38 percent to IDR 12,599 per US dollar according to the Bloomberg Dollar Index.

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The central bank of Indonesia recently issued new regulations (Bank Indonesia Regulation No. 16/21/PBI/2014 and External Circular No. 16/24/DKEM) that aim to safeguard Indonesia’s financial fundamentals. These new regulations, which are an improvement of Bank Indonesia Regulation No. 16/20/PBI/2014 dated Oct. 28 2014, force Indonesian non-bank corporations to apply prudent fiscal management regarding foreign-denominated debt. Bank Indonesia felt these rules are needed as privately-held foreign debt rises continuously.

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The latest survey of Indonesia’s central bank indicates that consumer confidence fell in December 2014. The central bank’s Consumer Confidence Index fell 3.6 points to 116.5 in the last month of 2014 (a score above 100 signals optimism among consumers) due to the impact of higher subsidized fuel prices implemented in November 2014. This move triggered higher prices of products and services. The central bank’s Consumer Confidence Index is based on interviews with 4,600 households in 18 Indonesian cities.

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Indonesia’s inflation pace accelerated in December 2014, exceeding estimations of analysts and Indonesia’s central bank. December inflation, 2.46 percent (m/m) or 8.36 percent (y/y), accelerated due to the impact of higher subsidized fuel prices (introduced in November) and volatile food prices (fluctuating rice and chili prices at the year-end). Other factors that contributed to high inflation in 2014 were higher electricity tariffs for households and industries, the higher price of 12 kg LPG, and an airfare adjustment.

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Bank Indonesia (the central bank of Indonesia) and the Financial Services Authority (OJK) signed an agreement (the ASEAN Banking Integration Framework, abbreviated ABIF) with Malaysia’s central bank to support banking integration in the ASEAN region. The website of Bank Indonesia states that ABIF “provides an operating framework for ASEAN member states to implement principles and the integration process in the banking sector to support the ASEAN Economic Community (AEC) [which is to be implemented later this year]”.

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A team of the International Monetary Fund (IMF), led by David Cowen (advisor at the IMF’s Asia and Pacific Department), visited several Indonesian cities in the first three weeks of December 2014 to conduct research on the economic fundamentals of Southeast Asia’s largest economy. This research included the study of recent macroeconomic developments as well as the formulation of prognosis scenarios for the short and middle term. The IMF team held discussions with the government, Bank Indonesia, private entrepreneurs and scholars.

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External debt of Indonesia grew at a pace of 10.7 percent year-on-year (y/y) in October 2014, slightly slower than the 11.2 percentage point (y/y) growth pace in the previous month, according to a statement of Indonesia’s central bank (Bank Indonesia). Total outstanding external debt of Indonesia reached USD $294.5 billion in October (from USD $292.3 billion in the previous month). While growth of public sector external debt slowed in October, private sector external debt accelerated.

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Contrary to the previous trading day, most emerging Asian currencies strengthened against the US dollar on Tuesday (09/12) supported by the yen’s advance as falling oil prices dented risk appetite. Based on the Bloomberg Dollar Index, Indonesia’s rupiah appreciated 0.47 percent to IDR 12,331 per US dollar today. Despite local firms’ increased US dollar demand to settle debt before the year-end, market participants were happy to learn that Indonesia’s central bank is active in the foreign exchange market to guard the currency.

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Despite positive stock indices in the USA and Europe at the end of last week as well as mostly positive indices in Asia today (08/12), the benchmark stock index of Indonesia (Jakarta Composite Index, abbreviated IHSG) fell due to investors’ appetite for profit taking. Several matters made investors decide to sell their Indonesia shares, including the World Bank’s downward revision of Indonesia’s economic growth in 2015, Japan’s recession, weakening Chinese exports, and the sharply depreciating rupiah exchange rate.

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