The International Monetary Fund (IMF) praised the Indonesian government's policy approach to safeguard the country's financial stability amid external shocks in 2013 and hopes that the new government, which will be inaugurated in October 2014, continues the economic reform agenda. Changyong Rhee, Director of the IMF's Asia Pacific Department, said that Indonesia - Southeast Asia's largest economy - is currently on the right track and forecast to grow 5.4 percent in 2014, slightly lower than the 5.78 percentage growth in 2013.

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Car and motorcycle sales increased rapidly in Indonesia throughout March 2014, primarily due to an improved distribution network. In the previous months, heavy rains amid a peak of the rainy season (causing floods in various parts of Indonesia) resulted in the postponement of car and motorcycle purchases. Data from the Association of Indonesian Automotive Industries (Gaikindo) indicated that car sales surged 18 percent (year-on-year, yoy) to 113,277 units in March 2014, while motorcycle sales grew 9.2 percent (yoy) to 728,820 units.

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Indonesian consumer confidence continued to grow in March 2014. According to the latest survey of Indonesia's central bank (Bank Indonesia), the country's consumer confidence rose to 118.2 in March from 116.2 one month earlier. Indonesians are particularly optimistic about domestic economic conditions over the next six months, evidenced by a 3.2 point rise in the Consumer Expectations Index to 123.9 points. Increasing consumer confidence is positive for household consumption, an important pillar of Indonesia's economic growth.

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The Indonesian rupiah exchange rate moved rather sideways on Friday (04/04). Based on the Bloomberg Dollar Index, the currency appreciated 0.06 percent to IDR 11,316 per US dollar. Most emerging Asian currencies tended to depreciate against the greenback as the market is waiting for US unemployment data, released later today. Overall, market participants remain confident in Indonesia's economic fundamentals as inflation eased to 7.32 percent (yoy) in March, while the country posted a trade surplus of USD $785 million in February.

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The Indonesian rupiah exchange rate depreciated 0.25 percent to IDR 11,323 per US dollar on Thursday (03/04) according to the Bloomberg Dollar Index. Analysts Rangga Cipta (Samuel Sekuritas Indonesia) and Zulfirman Basir (Monex Investindo Futures) expect the rupiah to move sideways or weaken toward the end of the week as the market is waiting for various data, including the meeting of the European Central Bank regarding its interest rate (03/04), US unemployment, US nonfarm payrolls and US ISM Non-Manufacturing PMI.

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The Asian Development Bank (ADB) expects Indonesia's economic growth this year to slow slightly compared to the 5.78 percent growth rate recorded in 2013. ADB's Country Director for Indonesia, Adrian Ruthenberg, said that GDP growth of Southeast Asia's largest economy is expected to slow to 5.7 percent in 2014 but will accelerate to 6 percent in 2015. The ADB's forecast is based on the assumption that Indonesia's legislative and presidential elections will run smoothly as well as continued government effort to improve the investment climate.

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On Tuesday (01/04), Statistics Indonesia announced that Indonesia's March 2014 inflation rate was recorded at 0.08 percent, considerably lower than February 2014 inflation (0.26 percent) and March inflation in 2013 (0.63 percent). Factors that contributed to lower than expected March inflation were a decline in prices of food commodities due to the start of the harvest season, and the appreciating rupiah, which neutralized imported inflation. On a year-on-year basis, Indonesian inflation eased to 7.32 percent from 7.75 percent in February 2014.

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Statistics Indonesia (BPS) expects inflation in March 2014 to be kept below the one percent mark due to the arrival of the harvest season. Prices of several commodities, including rice, beef, chicken meet and chili, are expected to ease. In fact, BPS official Sasmito Hadi Wibowo stated that there is a chance on deflation in March 2014. Historically, Indonesia's inflation in March and April tends to be low, particularly in the latter as the harvest season reaches its peak. In 2013, Indonesia recorded inflation at 0.63 percent in March.

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Car sales in Indonesia grew 8.2 percent (year-on-year) to 111,767 vehicles in February 2014 according to the latest data from the Association of Indonesian Automotive Manufacturers (Gaikindo). As usual, car sales were dominated by Toyota, Daihatsu (both are distributed by Astra International, one of Indonesia's largest diversified conglomerates), Mitsubishi, Suzuki and Honda. February sales were supported by the popular low-cost green car (LCGC) that was introduced on Indonesia's market in 2013.

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The central bank of Indonesia (Bank Indonesia) lowered its forecast for growth of Southeast Asia's largest economy in 2014 from the range of 5.8 - 6.2 percent to 5.5 - 5.9 percent as expansion of domestic consumption and exports are less robust than previously estimated. As such, Bank Indonesia implied that economic expansion of Indonesia will slow down further. Starting from 2011, gross domestic product (GDP) growth of Indonesia has declined steadily from 6.5 percent to 5.8 percent in 2013.

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On Thursday 14 November 2013, Agus Martowardojo, Governor of Indonesia's central bank (Bank Indonesia), delivered his end-of-the-year speech at the Annual Bankers’ Dinner. The meeting was attended by leaders from Indonesia's House of Representatives (DPR), economic ministers, leaders of the country's banking industry and business community, non-ministerial government agencies as well as a number of international institutions, thus representing a strategic forum in terms of the national economy.

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Indonesia's benchmark stock index (IHSG) was not able to continue its rebound. On Friday (15/11), the IHSG fell 0.73 percent to 4,335.45 points amid widespread profit taking. Foreign investors recorded net selling of IDR 193 billion (USD $16.9 million) on today's trading day. Moreover, investors are concerned about the impact of the higher interest rate of the central bank (7.50 percent), particularly on the property and banking sectors in the fourth quarter of 2013.

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Despite rising concerns about the slowing pace of the Indonesian economy, the deputy minister of Finance Bambang Brodjonegoro reminded investors that Indonesia's economic growth in the third quarter of 2013 still constitutes one of the highest growth rates around the globe. Economic expansion in Q3-2013 slid to 5.6% in Southeast Asia's largest economy. With the exception of China (7.8% GDP growth in Q3-2013), Indonesia's growth continues to outpace growth in other emerging markets, such as Brazil (3.3%) and Turkey (4%).

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Five more new public listings are expected on the Indonesia Stock Exchange (IDX) in the remainder of 2013 despite the current less rosy macroeconomic environment in Indonesia. The companies that are expected to conduct their initial public offering (IPO) are Indomobil Multi Jasa, Dwi Aneka Jaya Kemasindo, Blue Bird, Soechi Lines, and Sawit Sumbermas Sarana. So far this year, 26 Indonesian companies went public on the IDX. At the start of the year, the IDX targeted for at least 30 new listings in 2013.

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Indonesia's Jakarta Composite Index (IHSG) started Tuesday's trading day (12/11) slightly in the red. However, after the central bank of Indonesia (Bank Indonesia) announced to have raised its benchmark interest rate (BI rate) by 25 bps to 7.50 percent, the IHSG quickly plunged. The interest rate hike is considered as a sign that Bank Indonesia is still concerned about the nation's macroeconomy, particularly Indonesia high inflation (8.32 percent yoy in October 2013). The index fell 1.38 percent to 4,380.64 points.

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Bank Indonesia decided to raise the BI rate by 25 bps to the level of 7.50 percent, with the Lending Facility rate and Deposit Facility rate raised to 7.50 percent and 5.75 percent respectively. This policy was taken in light of the persistently large current account deficit amid widespread global uncertainty. Therefore, the decision was taken in order to ensure that the current account deficit is reduced to a more sound level and inflation in 2014 returns to around 4.5±1 percent, thereby supporting sustainable economic growth.

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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 October 2013 edition, a number of important issues 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:

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Indonesian car sales have already exceeded the one million mark in October 2013. In the January-October period, 1,018,786 car units were sold, a ten percent increase compared to car sales in the same period last year. Growing demand for cars in Indonesia indicates that this sector of Southeast Asia's largest economy is not influenced by current negative market sentiments, such as the sharply depreciated Indonesian rupiah exchange rate (against the US dollar), high inflation (8.32 percent yoy in October 2013), and slowing economic growth.

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Indonesia will most likely not meet its original GDP growth target of 6.3 percent (stipulated in the 2013 State Budget). Yesterday (06/11), it was announced by Statistics Indonesia that Indonesia’s GDP growth figure in the third quarter of 2013 was recorded at 5.62 percent (year-on-year, yoy), the weakest quarterly growth figure since 2009 when the global financial crisis impacted on Southeast Asia’s largest economy. In 2013, Indonesia feels the global impact again, in combination with domestic factors.

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Last week, the Jakarta Composite Index (IHSG) weakened. The benchmark stock index of Indonesia was affected by negative market sentiments brought on by domestic factors. Most importantly, the large-scale demonstrations across Indonesia by Indonesian workers who demanded for higher minimum wages as annual inflation has surged since June 2013 after prices of subsidized fuels were raised. These demands, however, jeopardize the attractiveness of Indonesia's investment climate.

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