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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Indonesian Finance Minister Chatib Basri expects that the higher electricity tariffs which may be introduced per 1 July 2014 (for 400-950 watt capacity) will have a relatively small impact on the pace of inflation in Southeast Asia’s largest economy. “If introduced, the higher electricity price may add 0.1 or 0.2 percentage point to inflation. The limited impact of this price hike on Indonesian inflation means that the government will not revise its inflation target for 2014 yet,” Basri said. The Indonesian government targets an inflation growth rate of 5.3 to 5.5 percent.

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According to Bank Indonesia's consumer confidence survey, Indonesian consumers were more optimistic in May 2014 compared to the previous month. Consumer confidence in Southeast Asia's largest economy increased to 116.90 in May 2014 from 113.90 in April. The increase indicates that Indonesian consumers are more optimistic about the current condition of the Indonesian economy as well as conditions in the coming six months. The result in May 2014 was also higher than in the same month in 2013 (112.8).

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On 31 May 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 topics such as the construction of the world's largest geothermal power plant, forecasts for May inflation and April trade statistics, an update on the ceramic industry as well as on the rupiah and Indonesian stocks.

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The central bank of Indonesia (Bank Indonesia) expects to see a trade deficit in the month of April 2014 due to a significant increase of imports (around 11 percent month-to-month), while prices of a number of important export commodities have been under pressure (including coal and crude palm oil). Governor of Bank Indonesia Agus Martowardojo said that weak demand from China impacts negatively on the trade balance. Bank Indonesia's statement contradicts the institution's earlier statement which hinted at a surplus of USD $600 million in April.

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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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Today (02/06), Statistics Indonesia released various important economic data that provide more insight into the state of the Indonesian economy. Two of these indicators - inflation and trade - are discussed in this column. Head of Statistics Indonesia Suryamin announced that inflation in May 2014 rose by 0.16 percent (slightly higher than previously expected), while the April 2014 trade balance of Indonesia recorded a USD $1.96 billion deficit. These data were not well received by the market, evidenced by sharp rupiah depreciation.

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The government of Indonesia will submit a new draft proposal for the 2014 Revised State Budget (APBN-P 2014) on 20 May 2014. Of the seven basic macroeconomic assumptions in the 2014 State Budget (APBN 2014), three assumptions are proposed to be revised. These involve general economic growth, the Indonesian rupiah exchange rate, and crude oil lifting. The government felt that the assumptions need a revision as results in the first quarter of 2014 have not been up to expectation.

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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 April 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 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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