The government of Indonesia may cut fuel prices in the fourth quarter of 2015 in an effort to boost people's purchasing power and reduce costs for local manufacturers. The move would be part of the government's stimulus package that is expected to be announced next week. On 9 and 29 September the Indonesian government had already unveiled the first two installments of the policy package. Contrary to the first two installments, the third one should bear fruit on the short-term.

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Indonesia experienced deflation, with consumer prices falling by 0.05 percent (month-on-month), in September 2015 on the back of lower food and transportation prices. Examples of lower food prices include chicken meat, eggs, chili peppers, onions and cooking oil. Regarding lower transportation costs it was particularly lower air transport tariffs that contributed to deflation. On an annual basis, Indonesian inflation eased to 6.83 percent in September, down from 7.18 (y/y) in the preceding month, and below analysts' estimates at 7.0 (y/y).

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On 27 September 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 Bank Indonesia’s new policy package, GDP growth, geothermal development, a stocks & rupiah update, September inflation, and much more.

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The central bank of Indonesia (Bank Indonesia) estimates that inflation will ease below seven percent year-on-year (y/y) in September 2015 on the back of lower prices of raw foods and lower administered prices (including fuel and electricity) in the post the Ramadan and Idul Fitri period. Bank Indonesia Governor Agus Martowardojo said the central bank expects inflation at around 6.95 percent (y/y) in September.

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In line with expectation, the central bank of Indonesia (Bank Indonesia) decided to keep its key interest rate (BI rate) at 7.50 percent for a seven consecutive month in September’s Board of Governor’s meeting (17/09) as it aims to stabilize the rupiah amid global volatility caused by looming higher US interest rates and China’s hard landing (as well as yuan depreciation), while combating inflation which stood at 7.18 percent (y/y) in August. The overnight deposit facility rate and lending facility rate were left unchanged at 5.5 percent and 8 percent, respectively.

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With all eyes on the two-day policy meeting of the Federal Reserve, we could almost forget that the central bank of Indonesia (Bank Indonesia) will also hold its monthly policy meeting today. Similar to the topic discussed in the Federal Open Market Committee (FOMC) meeting (16-17 September), Bank Indonesia may consider raising its key interest rate (BI rate) as a Fed Fund Rate hike would trigger capital outflows, while Indonesia’s inflation rate remains high and the rupiah is fragile.

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For the second time, the central bank of Indonesia (Bank Indonesia) cut its 2016 forecast for economic growth in Indonesia, Southeast Asia’s largest economy. Due to persistent low commodity prices and weak export figures, the central bank now estimates that Indonesia’s economy will grow in the range of 5.2 - 5.6 percent (y/y) next year, down from its earlier outlook of 5.3 - 5.7 percent and the initial outlook of 5.4 - 5.8 percent.

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Despite the hosting of the Gaikindo Indonesia International Auto Show 2015 (20-30 August 2015), Indonesian car sales continued to shrank in August due to people’s weaker purchasing power amid the country’s economic slowdown. In August a total of 90,077 cars were sold in Southeast Asia’s largest economy, down 6.9 percent from the same month last year, according to the latest data from the Indonesian Automotive Industry Association (Gaikindo).

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Mirah Sumirat, Chairman of the Indonesian Association of Trade Unions (Asosiasi Serikat Pekerja, abbreviated ASPEK), stated that the tens of thousands of Indonesian workers who participate in the demonstration, organized in Central Jakarta on Tuesday (01/09), are not seeking anarchy or a coup but simply request that the government will make more efforts to protect the interests of the people (as stipulated by the 1945 Constitution; article 27, paragraph 2).

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Tomorrow (Tuesday 01 September 2015) around 50,000 Indonesian workers are expected to demonstrate on the streets of Central Jakarta and demand for higher wages. This mass protest is a response to the many layoffs that occurred in Indonesia’s labor-intensive industries in recent months (while more layoffs are expected in the period ahead) as well as a response to people’s weakening purchasing power (curtailed by prolonged high inflation).

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Coordinating Minister for Economic Affairs Hatta Rajasa said that the rupiah exchange rate's new equilibrium is at IDR 11,000 per US dollar. As the economic fundamentals of Indonesia's economy have improved in recent months - evidenced by the easing current account deficit and inflation - the rupiah has shown a strong performance, appreciating around six percent against the US dollar in 2014 (year to date). In fact, Rajasa warned that the rupiah should not strengthen too much as this impacts negatively on Indonesia's trade balance.

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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 February 2014 edition, a number of important topics that are monitored include Indonesia's inflation rate, the trade balance, the current account deficit, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:

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The rate of Indonesian inflation eased in February 2014. Inflation decelerated in February 2014 to 0.26 percent (month-to-month) or 7.75 percent (year-on-year), down from the previous month at 1.07 percent (mtm) or 8.22 percent (yoy) respectively. The drop in the inflation rate is attributable to central and local government policy taken to minimize the second-round effects of recent natural disasters, thereby bringing the inflation of volatile foods in the reporting month to just 0.32 percent (mtm) or 9.85 percent (yoy).

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The central bank of Indonesia (Bank Indonesia) is optimistic that the country's currency will continue to appreciate against the US dollar in the first quarter of 2014. Executive Director at the Economic and Monetary Policy Department of Bank Indonesia Juda Agung said that there are two factors that impact positively on the performance of the Indonesian rupiah exchange rate: the improved global economy and strengthening domestic economic fundamentals. However, Agung declined to estimate the value of the rupiah by the end of Q1-2014.

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After Indonesia's outlook for economic growth in 2014 was revised down from 6 percent to between 5.8 and 6 percent, the government also revised targets of poverty and unemployment reduction. In the 2014 State Budget (APBN 2014), the government set the targeted poverty rate at 9.0 to 10.5 percent of Indonesia's total population. However, the government revised down this poverty rate to between 10.54 and 10.75 percent, which is also far below the target that was set in the National Medium Term Development Plan (RPJMN) at 8 to 10 percent.

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Foreign confidence in Indonesia's capital markets seems to be growing further after foreign investors continued to expand their stock portfolios last week. In February 2014 (up to Friday 21/02), foreigners purchased IDR 36.0 trillion (USD $3.1 billion) worth of stocks and sold IDR 29.3 trillion (USD $2.5 billion), resulting in net foreign buying of 6.7 trillion (USD $570.2 million) in the first three weeks of February 2014. When foreign net buying of January 2014 is added, total net foreign buying reached IDR 9.0 trillion (USD $766.0 million).

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Only 50 days since the start of the fiscal year 2014 have passed and the government has already shown that it is not convinced to meet targets of basic macroeconomic assumptions set in the 2014 State Budget (APBN 2014). Therefore, the Indonesian government has lowered the outlook for all basic macroeconomic assumptions in the 2014 State Budget. On Thursday 19 February 2014, the government formally presented the downward revision of economic targets in the State Budget to the House of Representitative's Budget Agency.

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Recently, Statistics Indonesia (BPS) released various data in the context of Indonesia's gross domestic product (GDP). Economic expansion of Southeast Asia's largest economy slowed to 5.78 percent (year-on-year) in 2013. Household consumption accounted for the largest share of Indonesia's GDP (55.8 percent) and continued to grow significantly (5.28 percent yoy) in 2013. This consumer force is one of the main reasons why many foreign companies enter and expand their businesses in Indonesia.

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At Bank Indonesia's Board of Governors’ Meeting today (13/02), it was decided to maintain the country's benchmark interest rate (BI rate) at 7.50 percent as well as the interest rates on the Lending Facility and Deposit Facility at 7.50 percent and 5.75 percent respectively. The policy is consistent with the tight monetary policy stance currently adopted in order to steer inflation back towards its target corridor of 4.5±1 percent in 2014 and 4±1 percent in 2015, as well as to reduce the current account deficit to a more sustainable level.

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Domestic sales of motorcycles in Indonesia fell 11 percent to 580,288 units in January 2014. The main reason for this decline in the first month of the year were severe floods brought about by high rainfall amid a peak of the rainy season. These weather conditions disrupted the distribution of motorcycles from factories to dealers. As a result, all motorcycle brands recorded lower sales figures according to data released by the Indonesian Motorcycle Industry Association (Aisi). However, more factors were at play.

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