On Sunday (26/01), Indonesia's National Disaster Mitigation Agency (BNPB) reported that the floods in Jakarta have led to 23 casualties (due to drowning, electrocution or the impossibility for sick people to reach the hospital) in the last two weeks in Indonesia's capital city, while almost 28,000 people are still displaced from their homes. The good news, however, is that in many parts of Jakarta floodwaters have begun to subside since the end of last week although several neighborhoods remain flooded up to this day.

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Contrary to reports last week, the central bank of Indonesia (Bank Indonesia) expects that the country's January inflation rate may exceed 1 percent due to the disturbance of food products distribution amid severe floods in several cities in Indonesia, particularly Jakarta and Manado. Higher food prices are expected to add 0.3 percent to the monthly inflation rate. Apart from the flood issue, higher LPG as well as electricity tariffs (in the industry sector) will also contribute to January 2014 inflation.

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On Tuesday (21/01), the International Monetary Fund (IMF) sent a positive message to the world as it slightly raised its forecast for global economic growth in 2014. The main reason for this upward revision is the improving economy of the USA. According to the IMF, the US economy will grow 2.8 percent in 2014 (0.2 percentage points higher than the IMF's previous outlook released in October 2013). Due to stronger US growth, the global economy is now expected to expand by 3.7 percent (0.1 percent up from its previous forecast).

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Indonesia's Ministry of Finance is optimistic that the country's inflation rate can be kept at 5.5 percent in 2014 as demand and supply of goods is expected to remain stable although the depreciating rupiah exchange rate and weak state of the country's infrastructure will continue to provide inflationary pressures. Deputy Finance Minister Bambang PS Brodjonegoro expects inflation in January 2014 to be lower than in the same month last year (1.03 percent) but it remains uncertain the extent to which the current floods will impact on the inflation rate.

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Traditionally in the first month of the year, heavy rainfalls plague certain areas of Indonesia, particularly parts of Java, Kalimantan and Sumatra as the rainy season hits its peak. These weather conditions cause social problems as tens of thousands of people need to relocate as well as economic turmoil due to disrupted harvests and logistic trouble amid bad connectivity. Governor of Indonesia's central bank (Bank Indonesia), Agus Martowardojo, stated that the current weather conditions may result in higher inflationary pressures in January.

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Forecasts for economic growth in Indonesia in 2014 are still optimistic. The government of Indonesia targets a 6 percent growth rate, while the country's central bank (Bank Indonesia) expects GDP growth in the range of 5.8 to 6.2 percent. Although these forecasts clearly fall short of the target set in the country's National Medium Term Development Plan (RPJMN) - which mentions annual GDP growth of between 6.3 and 6.8 percent - the forecasts are still rather positive given the global uncertain and volatile economic context in recent years.

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The Governor of Indonesia's central bank (Bank Indonesia), Agus Martowardojo, expects that the pace of inflation in Indonesia in January 2014 is most likely to become one of the lowest January inflation rates in the last five years although it remains important that food supplies are maintained at safe levels. The higher price of LPG in Southeast Asia's largest economy is expected to contribute only slightly to January's inflation rate. Martowardojo also stated that Indonesia's macroeconomy is stable at the start of a new year.

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The performance of the Indonesia rupiah exchange rate on Friday morning (10/01) was rather stagnant against the US dollar (the latter's movement was mixed against currencies in the Asia-Pacific) although the rupiah was up 0.12 percent to IDR 12,178 per US dollar at 13:42 local Jakarta time based on the Bloomberg Dollar Index. Positive sentiments are caused by Indonesia's narrowing current account deficit (possibly less than 3 percent of GDP in Q4-2013) and rising foreign exchange reserves at end-December 2013.

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Indonesia's central bank (Bank Indonesia) kept its benchmark interest rate (known as the BI rate) at 7.50 percent in today's Board of Governor's meeting (09/01). The institution decided not to change its interest rate because it estimates that the inflation target for 2014 is not in jeopardy (4.5 percent) while Indonesia's economic growth prospects for 2014 and 2015 remain unchanged. Also the overnight lending facility as well as deposit facility rate (Fasbi) were kept at 7.50 percent and 5.75 percent respectively.

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Supported by legislative and presidential elections, car sales in Indonesia are expected to grow between five and ten percent to 1.30 million total vehicles in 2014. These elections are estimated to boost the domestic money flow due to increased economic activity in Southeast Asia's largest economy. Consumption goods such as cars and food & beverage products are expected to feel the impact of this development and may offset the negative impact brought on by the weak rupiah, high inflation and the high interest rate environment.

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ICRA Indonesia, an independent credit rating agency and subsidiary of ICRA Ltd. (associate of Moody's Investors Service), publishes a monthly newsletter which provides an update on the financial and economic developments in Indonesia of the last month. In the June 2014 edition, a number of important topics that are monitored include Indonesia's inflation rate, the trade balance, the BI rate, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:

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Emerging currencies in Asia, led by the Indonesian rupiah exchange rate, strengthened in the past week on positive economic data from the US and China, the world’s two largest economies. Companies in the US added more jobs than expected in June 2014, while manufacturing in China grew at its fastest pace in 2014. Improving economies of the US and China are important for Asian countries as it boosts Asian exports. Moreover, Indonesian inflation and trade data contributed to positive market sentiments.

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Inflation in June 2014 increased by 0.43 percent (month-to-month, mtm) in accordance with the traditional pattern ahead of the holy fasting month of Ramadan and Idul Fitri celebrations. These occasions always trigger inflationary pressures as consumers increase spending. However, June inflation remains under control and is even lower than the historical average in June in recent years (0.56 percent mtm). On a year-on-year (yoy) basis, inflation stood at 6.70 percent, thus continuing the downward trend since the beginning of 2014.

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Head of Statistics Indonesia (BPS) Suryamin announced on Tuesday (01/07) that the number of poor people in Indonesia declined slightly to 28.28 million people (or 11.25 percent of the total population) in March 2014, from 28.60 million (11.46 percent of the total population) in September 2013. However, compared to March last year, poverty has increased by 110,000 people due to high inflation and a slowing economy; economic growth slowed to 5.78 percent in 2013 and this decline continued to 5.21 percent in the first quarter of 2014.

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The Indonesian rupiah exchange rate is appreciating sharply on Monday (30/06). By 15:13pm local Jakarta time, the currency of Indonesia had strengthened 1.31 percent to IDR 11,838 against the US dollar. Main factors that cause this performance are the weakening US dollar (as a slowdown in the US economic recovery evokes expectations that the Fed Rate will not be raised soon) and falling oil prices; the US benchmark West Texas Intermediate declined 30 cents to USD $105.44 in mid-morning trade while Brent crude fell 22 cents to USD $113.08.

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The Indonesian rupiah exchange rate depreciated 0.07 percent to IDR 12,099 per US dollar on Thursday (26/06) based on the Bloomberg Dollar Index, thus extending its recent weakening trend. This trend is expected to continue further as Bank Indonesia said it would allow rupiah depreciation in order to make the country’s exports more competitive (in an attempt to curb the current account deficit). However, this also dampens demand for Indonesian bonds. The 10-year yield rose to the highest level since February 2014.

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ICRA Indonesia, an independent credit rating agency and subsidiary of ICRA Ltd. (associate of Moody's Investors Service), publishes a monthly newsletter which provides an update on the financial and economic developments in Indonesia of the last month. In the May 2014 edition, a number of important topics that are monitored include Indonesia's inflation rate, the trade balance, the BI rate, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:

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On Thursday 12 June 2014 it was decided at the central bank’s Board of Governors’ Meeting to maintain the country’s benchmark interest rate (BI rate) at 7.50 percent, with the Lending Facility rate and Deposit Facility rate held at 7.50 percent and 5.75 percent, respectively. This decision is consistent with ongoing efforts to steer inflation back towards its target corridor of 4.5±1 percent in 2014 and 4.0±1 percent in 2015, as well as to reduce Indonesia’s current account deficit to a more sustainable level.

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Car sales in Indonesia declined 8 percent to 98,198 units in May 2014 from 106,811 units in the previous month. The Indonesian Automotive Industry Association (Gaikindo) said that the decline was the direct consequence of several public holidays (International Labour Day and the commemorations of Buddha’s birthday as well as ascensions of Prophet Muhammad and Jesus Christ). These holidays caused a lower car production rate and a reduced number of car deliveries to wholesale dealers.

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According to Statistics Indonesia (BPS), the country's balance of trade in April 2014 recorded a deficit of USD $1.96 billion, after having recorded a surplus of USD $0.67 billion in March. The balance of trade performance in April 2014 was particularly affected by the country's non-oil & gas balance, which turned from a surplus into a deficit, whereas a lower deficit in the oil & gas trade balance was realized (compared to March 2014). Meanwhile, inflation in May 2014 was slightly higher at 0.16 percent (mtm) from the previous month.

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