The pace of Indonesian inflation in July 2014 is expected to be in the range of 0.60 to 0.75 percent (month-on-month). If realized, this would be one of the lowest July inflation figures in recent Indonesian history. Traditionally, the month of July brings high inflationary pressures as consumers spend more on food products and other consumer goods as well as transportation amid the holy fasting month of Ramadan and subsequent Idul Fitri celebrations (which also involves the mudik tradition).

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Deputy Governor of Indonesia’s central bank (Bank Indonesia), Mirza Adityaswara, expects that inflation in July 2014 will reach between 0.8 and 0.9 percent (month-to-month). If realized, this would be relatively mild inflation amid a month that is traditionally characterized by high inflationary pressures due to the impact of the holy Muslim fasting period (Ramadan) and Idul Fitri celebrations. In this period Indonesian consumers always increase purchases of food and other consumer products such as clothes and shoes.

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Five emerging markets, India, Brazil, Turkey, South Africa and Indonesia, have become known to the world in 2013 as the ‘Fragile Five’, a term coined by analysts at Morgan Stanley. This term refers to those five emerging economies that were considered most vulnerable to the winding down of the US Federal Reserve’s quantitative easing program (bond-buying program) as capital inflows dried up, or, in fact reversed. The five countries were assessed as risky due to their twin fiscal and current-account deficits, slowing economic growth and high inflation.

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Bank Indonesia Governor Agus Martowardojo expects that inflation in July 2014 will be under control. However, there are several factors that trigger inflationary pressures. These include the holy Islamic fasting month Ramadan and subsequent Idul Fitri celebrations at the month-end, as well as higher electricity tariffs and the start of the new school season (inflation in July is traditionally higher than in other months due to seasonal factors). Martowardojo still believes that the year-end inflation target 3.5 to 5.5 percent can be achieved.

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The central bank of Indonesia (Bank Indonesia) decided to keep its benchmark interest rate (BI rate) at 7.50 percent at today’s Board of Governor’s meeting. The lending facility as well as deposit facility were maintained at 7.50 and 5.75 percent, respectively. The central bank believes that the current interest rate environment is able to push the inflation figure back to its target range of between 3.5 and 5.5 percent by the year-end. Earlier this month, Statistics Indonesia announced that inflation has eased to 6.70 percent (year-on-year) in June 2014.

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According to data from the Indonesian Automotive Industry Association (Gaikindo), domestic car sales in Indonesia rose 13 percent to 109,706 car units in June 2014 from the previous month (97,147 vehicles) as people increased car purchases ahead of the Idul Fitri (Lebaran) festivities, which commence after the holy fasting month of Ramadan has ended on 28 July. Idul Fitri involves the exodus of millions of Indonesians from the cities to their places of origin. Ahead of this celebration, car sales always increase.

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Ahead of the release of the Indonesian government’s official June consumer confidence report (expected to be released today), a survey conducted by the Danareksa Research Institute shows that Indonesian consumer confidence may have weakened 0.3 percent to 94.8 points in June 2014 amid concern about job availability and an expected slowdown in economic growth of Indonesia for the six months ahead. A reading below 100 points indicates pessimism, while a reading above 100 points indicates optimism.

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On Tuesday morning (01/07), Chief Statistician at Statistics Indonesia (BPS) Dr. Suryamin announced that inflation rose 0.43 percent (month-on-month) in June 2014. The foodstuff component provided highest inflationary pressures in the past month. On a year-on-year basis, headline inflation eased to 6.70 percent from 7.32 percent in May 2014. Calender year inflation (up to June 2014) rose to 1.99 percent. Later today, Indonesia Investments will publish an analysis of June inflation.

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Indonesian Finance Minister Chatib Basri estimates that the trade balance of Indonesia may post an USD $500 million surplus in May 2014 amid improved performance of the country’s crude palm oil (CPO) exports, both in terms of price and volume (crude palm oil being one of the most important foreign exchange earners of Indonesia). Concern about Indonesia’s trade balance (and current account balance) had returned after Indonesia recorded an USD $1.96 billion deficit in the previous month.

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The central bank of Indonesia (Bank Indonesia) expects to see a trade surplus in May 2014. Governor of Bank Indonesia Agus Martowardojo stated that he is optimistic that Indonesia’s trade balance will show positive growth after recording a shocking deficit of USD $1.96 billion in April 2014. This deficit was mainly the result of weak global demand for crude palm oil and coal, both of which are Indonesia’s most important foreign exchange earners in the non-oil & gas sector. However, this global demand is expected to have remained weak in May.

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The central bank of Indonesia (Bank Indonesia) decided at today’s Bank Indonesia Board of Governors’ Meeting, convened on 8 May 2014, 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 policy is consistent with efforts to steer the rate of inflation towards its target corridor of 4.5±1 percent in 2014 and 4.0±1 percent in 2015, as well as to reduce the current account deficit to a more sustainable level.

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After Statistics Indonesia (BPS) had announced on Monday (05/05) that Indonesia's gross domestic product (GDP) grew by 5.21 percent year-on-year (yoy) in the first quarter of 2014 (considerably below analysts' projections of around 5.6 percent), concerns have risen about the country's economic expansion for the remainder of the year. The government of Indonesia targets a GDP growth rate of between 5.8 and 6.0 percent (yoy). However, several international institutions do not agree with this optimistic target.

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Indonesian Finance Minister Chatib Basri said that the country's economic growth in 2015 is targeted in the range of 5.5 to 6.3 percent. Amid further Federal Reserve tapering and possible interest rate hikes in the world's largest economy, chances of capital outflows from emerging markets (including Indonesia) are becoming larger. Basri said that these global conditions impact on GDP growth, the Indonesian rupiah exchange rate and inflation. Therefore, 2015 is a transition year, reflected by tighter economic projections and state spending.

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The central bank of Indonesia (Bank Indonesia) stated that the country's inflation outcome in April 2014 is further evidence of a continuing downward trend. In fact, Indonesia's consumer price index (CPI) in April recorded deflation of -0.02 percent month-to-month (mtm) or 7.25 percent year-on-year (yoy), thus easing compared to 0.08 percent (mtm) of inflation or 7.32 percent (yoy) in March 2014. Since January 2014, Indonesia has now recorded moderating inflation, both on a monthly and annual basis.

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Indonesia’s HSBC Markit Purchasing Manager’s Index (PMI) showed a reading of 51.1 in April 2014, significantly up from 50.1 in the previous month, meaning that manufacturing activity in Indonesia has grown (a reading above 50.0 indicates expansion, while a reading below 50.0 indicates contraction). In fact, amid improved economic conditions as well as strong demand, manufacturing activity in Southeast Asia’s largest economy expanded at the fastest pace in 11 months.

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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 March 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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The central bank of Indonesia (Bank Indonesia) decided to maintain its benchmark interest rate (BI rate) at 7.50 percent at the Board of Governors’ Meeting held on Tuesday 8 April 2014. The Lending Facility rate and Deposit Facility rate were held at 7.50 percent and 5.75 percent respectively. This policy 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 the current account deficit to a more sustainable level.

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Indonesia's gross domestic product (GDP) growth is expected to move sideways in the first quarter of 2014. Finance Minister Chatib Basri forecasts a growth rate of between 5.7 and 5.8 percent, similar to the growth pace that was recorded in the fourth quarter of 2013 (5.78 percent). Based on data from Statistics Indonesia (BPS), economic growth in Indonesia has slowed since the second quarter of 2013. In Q2-2013, Indonesia's GDP expanded by 5.89 percent, thereby ending a ten-quarter streak of +6 percentage growth.

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Indonesia's benchmark interest rate (BI rate) is expected to be maintained at 7.50 percent at Bank Indonesia's Board of Governor's Meeting on Tuesday 8 April 2014. Despite Indonesia's moderating inflation rate (7.32 percent year on year in March 2014) and the February 2014 trade surplus of USD $785 million, the BI rate may be left unchanged in order to support the further easing of Indonesia's current account deficit and to offset the impact of the possible US interest rate hikes in 2015 and 2016.

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The rate of inflation in March 2014 demonstrated that the ongoing downward trend persists. In the reporting month of March 2014, inflation was recorded at 0.08 percent (month-to-month) or 7.32 percent (year-on-year), down from the rates recorded in the previous two months at 1.07 percent (mtm) or 8.22 percent (yoy) in January and 0.26 percent (mtm) or 7.75 percent (yoy) in February. The declining inflation trend is further evidenced by a lower rate recorded in March 2014 than the historical average over the past six years at 0.24 percent (mtm).

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