Amid an improving trade balance, Indonesia’s foreign exchange reserves rose to USD $100.7 billion at the end of January 2014, according to a press release of Indonesia's central bank (Bank Indonesia). Compared to December 2013, the reserves increased USD $1.3 billion. These reserves are sufficient to finance 5.7 months of imports or 5.6 months of imports and servicing of government external debt, which is well above the international standard of reserve adequacy at 3 months of imports.

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The use of bitcoin, the hotly debated digital currency that was launched in 2009, is banned by the central bank of Indonesia (Bank Indonesia). This week, Bank Indonesia released a press release in which it states that the bitcoin and other virtual currencies are not considered as currencies nor legal payment instruments in Indonesia. After China, Denmark and Russia, Indonesia has become the next country to ban the use of the bitcoin as it can jeopardize the country's financial stability according to the assessment of the bank.

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The central bank of Indonesia (Bank Indonesia) stated that economic growth during the fourth quarter of 2013 was recorded at 5.72 percent (yoy), thus having increased compared to the previous quarter (5.63 percent, yoy), and which is also higher than Bank Indonesia's estimate (5.7 percent). With this development, the overall economic expansion in 2013 reached 5.78 percent. Bank Indonesia considers that the fundamental condition of Indonesia’s economy is still relatively robust.

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Although China's HSBC Purchasing Managers’ Index (PMI) in January 2014 fell below the 50.0 mark thus indicating contracting manufacturing, other Asian countries, including Indonesia, posted expanding manufacturing. Indonesia's HSBC Manufacturing PMI read 51.0 in the first month of the year, its highest reading since June 2013 and up from 50.9 in December 2013. However, this limited expansion also raised concerns that the policy tightening of Indonesia's central bank (Bank Indonesia) has not been as effective as hoped for.

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Credit growth in Indonesia's banking sector in 2014 is estimated to range between 17 and 18 percent. This estimation is higher than the central bank's target of 15 to 17 percent but lower than credit growth in 2013. According to Indonesia's Financial Services Authority (Otoritas Jasa Keuangan, OJK), this pace of growth is at a safe level. Third party funds are projected to grow 16 to 16.5 percent, while the OJK did not provide an estimation of the loan to deposit ratio (LDR) yet although it did say that the LDR was at a safe level too.

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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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Today (21/01), the government of Indonesia auctions rupiah-denominated state bonds of IDR 10 billion (USD $833 million) in order to reap funds to finance targets set in the government's 2014 state budget (APBN 2014). The bonds, involving the new issuance of SPN12150108 and re-openings of series FR0069, FR0070, and FR0071, have a nominal value of IDR 1 million each. Series SPN12150108 is issued at a discount yield. The central bank of Indonesia (Bank Indonesia) organizes the auction using a multiple price method.

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The central bank of Indonesia (Bank Indonesia) expects that the country will record another monthly trade surplus in December 2013. Perry Warjiyo, Deputy Governor of Bank Indonesia, said that the December trade balance is estimated to record a USD $785 million surplus, thus slightly improving from the USD $776.8 million surplus in November 2013. If Bank Indonesia's forecast is realized then it would be the third consecutive month in which Indonesia posts a trade surplus. This is important  to improve the country's financial stability.

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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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One of the main problems of Indonesia's benchmark stock index (IHSG) is the profit taking that immediately happens after a day of strong growth. On Wednesday (11/12), the IHSG index was plagued by profit taking since the start of the first trading session. Moreover, the index was impacted by mostly falling Asian stock indices as well as the Indonesia rupiah exchange rate which went above the IDR 12,000 per US dollar level again. The only support the IHSG received was just before its closing when European indices opened up.

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Indonesia's benchmark stock index (the Jakarta Composite Index or IHSG) continued yesterday's rise on today's trading day (10/12), supported by indices on Wall Street that climbed due to the lower VIX index (Chicago Board Options Exchange Market Volatility Index) although Asia's stock indices were mixed, while the Indonesia rupiah exchange rate continued its decline. Indonesia's manufacturing stocks were up along with consumer, automotive and processed foods stocks.

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After appreciating on Monday morning (09/12), the Indonesia rupiah exchange rate started to weaken against the US dollar in the afternoon. At 15:10:29 local Jakarta time, the rupiah stood at IDR 11,970 per US dollar in the Bloomberg Dollar Index, a 0.05 percent depreciation from the start of the day. The rupiah exchange rate is fluctuating due to positive sentiments caused by Indonesia's October trade surplus as well as China's low inflation and negative sentiments brought on by the looming end of the Federal Reserve's quantitative easing program.

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In the morning of Thursday (05/12), Indonesia's rupiah exchange rate depreciated beyond the psychological level of IDR 12,000 per US dollar. In the Bloomberg Dollar Index, the rupiah fell 0.2 percent to IDR 12,011 as of 09:19:49. The main factor behind this decline is market participants' concerns about the end of the Federal Reserve's monthly USD $85 billion bond buying program. It is increasingly speculated that the winding down of this program will start sooner than expected.

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The continued presence of negative market sentiments made it impossible for Indonesia's Jakarta Composite Index (IHSG) to rebound. The looming end of the FED's quantitative easing program - which may be wound down sooner than expected - is a big cause for concern. The depreciating Indonesia rupiah exchange rate intensifies these concerns, particularly regarding companies that have exposure to volatile US dollar movements. Furthermore, investors are waiting for further US economic data as well as for Bank Indonesia's next meeting.

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Apparently positive market sentiments brought on by the macroeconomic data released on Monday (02/12) did not last long. Yesterday, Indonesia's benchmark stock index (IHSG) was lifted by the October 2013 trade surplus and limited November inflation. However, investors are now back to reality and prefer to wait for results of Bank Indonesia's Board of Governor's meeting (12/12) and the Federal Reserve's FOMC meeting (17-18/12). The former will inform about Indonesia's interest rate, the latter about the future of quantitative easing.

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The inflation rate of Indonesia rose slightly in November 2013 (month-to-month) and confirms estimations that inflation in Southeast Asia's largest economy is under control after having accelerated sharply due to the introduction of higher subsidized fuel prices June 2013. In recent months, inflation moved sideways and is expected to ease considerably in the first quarter of 2014. Indonesia's consumer price index rose 0.12 percent in November due to rising electricity, processed foods and health care costs.

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After five consecutive days of depreciation, the Indonesian rupiah exchange rate finally managed to strengthen against the US dollar. Bank Indonesia's Jakarta Interbank Spot Dollar Rate rose 0.26 percent to IDR 11,946 per US dollar on Monday (02/12). According to Bloomberg data, the rupiah rose 1.85 percent to IDR 11,744 as of 02:25:50 ET as market participants have reacted positively to Indonesian trade and inflation data that were released today: October showed a trade surplus, while in November inflation was kept at 0.12 percent.

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On Friday (29/11), the last trading day of November 2013, the Indonesian rupiah exchange rate continued its downward spiral. The Jakarta Interbank Spot Dollar Rate¹ fell 0.39 percent to IDR 11,970 per US dollar amid concern about the winding down of the quantitative easing program, Indonesia's wide current account deficit, a disappointing US dollar-denominated bond auction and surging US dollar demand for earnings repatriation as well as foreign debt payment. Considering the full month of November, the rupiah depreciated 6.61 percent.

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Currently, one of Indonesia's main financial issues (and one which puts serious pressures on the Indonesian rupiah exchange rate) is the country's wide current account deficit. According to data from Statistics Indonesia, Indonesia's current account deficit totaled USD $8.4 billion in the third quarter of 2013. This figure is equivalent to a whopping 3.8 percent of Indonesia's gross domestic product (GDP). Generally, a current account deficit that exceeds 2.5 percent of GDP is considered unsustainable.

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