Bank Indonesia (Indonesia's central bank) has expressed that it will support slowing credit growth in the country's banking sector next year in order to foster a more stable financial environment amid a complex external and internal context. In recent years, credit growth in Indonesia has grown over 20 percent annually, while in 2013 it is expected to slow to between 18 and 20 percent amid a tighter policy regime. In 2014, Bank Indonesia targets credit growth between 15 to 17 percent. As a result banks will be more cautious in their lending approach.

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Agus Martowardojo, Governor of Bank Indonesia, expects Indonesia's November inflation rate to be modest at 0.05 to 0.1 percent (month-to-month). If Martowardojo's expection will be met then it means that inflation in Southeast Asia's largest economy is under control as November would be the third consecutive month of low inflation (or deflation). Inflation had accelerated significantly since June 2013 after the government raised prices of subsidized fuels and might reach 9 percent (yoy) by the end of 2013.

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The Indonesian rupiah continued its downward spiral on Monday morning (25/11). The central bank's mid rate fell 0.14 percent to IDR 11,722 per US dollar. Last week, the rupiah fell amid negative market sentiments brought on by the result of the Federal Reserve's FOMC meeting. The result seems to indicate that it will not take long before the quantitative easing program will be wound down. Contrary to the Australian dollar as well as the Indian rupee, news about the forthcoming financial reformation in China is unable to the support the rupiah.

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Several analysts expect that the central bank of Indonesia (Bank Indonesia) will raise its key interest rate (BI rate) again in the first Semester of 2014 in order to anticipate the winding down of the Federal Reserve's monthly USD $85 billion stimulus program (quantitative easing). Currently, the BI rate is set at 7.50 percent but analysts say that the market should be prepared for a hike to 8.0 percent in the first half of 2014. Between June and November 2013, Bank Indonesia has already raised its benchmark interest rate from 5.75 to 7.50 percent.

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Fitch Ratings, one of the three major global rating agencies, affirmed Indonesia's sovereign credit rating at BBB- with a stable outlook. In a press release, the rating agency mentioned four key factors that led to the affirmation of the sovereign rating. These are: good policy management by Indonesia's central bank (Bank Indonesia) and government amid external pressures, relatively high economic growth, prudent fiscal management (resulting in low public debt), and a strong banking sector (confirmed by multiple stress tests).

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Agus Martowardojo, Governor of Indonesia's central bank, expects the Indonesian economy to consolidate in 2014. The country is currently experiencing an economic correction with GDP growth slowing to 5.62 percent in the third quarter of 2013. Martowardojo said that the current account deficit still needs time to reach a healthy level. Indonesia's current account deficit stood at USD $8.4 billion (equivalent to 3.8 percent of the country's GDP) in the third quarter of 2013, down from USD $9.8 billion (4.4 percent of GDP) in the second quarter.

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Concerns about the looming end of the Federal Reserve's monthly USD $85 billion stimulus program (known as quantitative easing or QE3) in combination with the deteriorating domestic economy of Indonesia has caused Indonesia's benchmark stock index (IHSG) to plunge 1.95 percent in the first trading session of 13 November 2013. The Indonesian rupiah exchange rate depreciated 0.28 percent to IDR 11,600 according to Bloomberg. These developments happen one day after the decision of Indonesia's central bank to raise the BI rate to 7.50 percent.

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Agus Martowardojo, Governor of Indonesia's central bank (Bank Indonesia), stated that the country's economy is expected to grow 5.7 percent in 2013. Bank Indonesia believes GDP growth in the fourth quarter of 2013 to fall below the growth figure realized in Q3-2013 (5.62 percent). Martowardojo said that the government needs to continue measures to improve the country's exports, while trying to curtail imports of oil and gas as domestic demand for fuels remained high, even after the increase in prices of subsidized fuels in June 2013.

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Indonesia's foreign exchange (forex) reserves totalled USD $97.0 billion at the end of October 2013, up USD $1.3 billion from the previous month (USD $95.7 billion). Consequently, the current level of foreign exchange reserves is equivalent to 5.5 months of imports and the government’s foreign debt payment. Bank Indonesia considers the current stockpile of forex reserves adequate to bolster external sector resilience and is above international adequacy standards.

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Today (06/11), Statistics Indonesia announced that Indonesia's gross domestic product (GDP) expanded 5.62 percent in the third quarter of 2013 from the same period in 2012. The result implies the continuation of Indonesia's slowing economic growth as Q3-2013 constitutes the fifth consecutive quarter in which the country recorded slowing economic growth. Previously, the government had already expressed its concern about the GDP growth figure in Q3-2013 because the current high inflation rate curbs household consumption.

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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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The government of Indonesia will release two additional fiscal policy packages at the end of November or start of December that both aim to heal Indonesia's current account deficit. The two packages constitute follow ups of the policy package that was released in August 2013. Previously, deputy minister of Finance, Bambang Brodjonegoro, announced that an additional package would be released in October. However, it turned out that the government needed some more time to prepare the two additional packages.

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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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The economic stabilisation policies launched by Indonesia's central bank (Bank Indonesia) and the Indonesian government in recent months have brought a steady improvement in the country's current account balance. The current account deficit moderated from the previous quarter’s record USD $9.9 billion (equivalent to 4.4 percent of the country's GDP) to USD $8.4 billion (3.8 percent of GDP) in the third quarter of 2013. A shrinking current account deficit is highly awaited by investors. The text below is the official press release of Bank Indonesia.

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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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Amid negative market sentiments, brought on by domestic factors, Indonesia's benchmark stock index (IHSG) and rupiah exchange rate plunged on Wednesday (13/11). For many investors, in particular foreign investors, Indonesia's central bank's decision to raise the benchmark interest rate (BI rate) by 25 bps to 7.50 percent yesterday (12/11) was reason to engage in stock selling. It was worsened by the continued decline of the rupiah as well as weak Asian stock indices and weak stock openings in Europe.

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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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