The central bank of Indonesia is expected to keep its key interest rate (BI rate) at 7.50 percent at the next Board of Governors’ meeting (scheduled for Thursday 13 November 2014) in anticipation of accelerated inflation triggered by higher prices of subsidized fuels. The Indonesian government plans to raise prices of subsidized gasoline and diesel before the end of the month in an attempt to curb the country’s wide current account deficit and reallocate government funds to more structural or productive activities than fuel consumption.

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On 9 November 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 matters such as GDP growth in the third quarter of 2014, October inflation, higher subsidized fuel subsidies, Islamic finance, unemployment, the IPO of Blue Bird, a crude palm oil update, Indonesia’s tax system, and more.

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Amid slowing economic growth, Indonesia’s unemployment rate increased slightly in August 2014. On Wednesday (05/11), Statistics Indonesia announced that 7.24 million Indonesians, or 5.94 percent of the country’s labour force, were without a job. In the previous unemployment report (covering conditions in the month February 2014), Indonesia’s unemployment rate stood at 5.70 percent of the country’s labour force (about 7.15 million Indonesians). The government agency releases Indonesia’s unemployment data twice per year.

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Jusuf Kalla, Vice President of Indonesia, confirmed that subsidized fuel prices will be raised this month. Although Kalla declined to announce the specific amount, analysts expect a sharp increase of between IDR 2,000 and 3,000 (roughly USD $0.21) per liter - a price hike of almost 50 percent - to prices of both gasoline and diesel. Currently, the price of premium gasoline is IDR 6,500 (USD $0.54) per liter and diesel IDR 5,500 (USD $0.46). Economists have long requested for higher subsidized fuel prices in Indonesia as these distort the economy.

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On Monday (03/11), several important macroeconomic data were released by statistics Indonesia. Firstly, inflation was relatively high in October at 0.47 percent month-on-month (m/m). Secondly, Indonesia posted another trade deficit in September (USD $270 million). Thirdly, Indonesia's October manufacturing activity showed a contraction (the country’s manufacturing Purchasing Manages' Index fell to a 14-month low of 49.2 in October). Lastly, a total of 791,300 foreign tourists visited Indonesia in September.

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On 2 November 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 matters such as GDP growth in the third quarter of 2014, an October inflation update, developments in coal mining, Internet connectivity, Soechi Lines’ IPO, Joko Widodo’s new cabinet, and more.

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Indonesia’s inflation figure this October may reach the highest level in five years primarily due to volatile food prices triggered by drought in several parts of Indonesia. Chili, in particular, has shown a widening gap between domestic demand and production thus adding inflationary pressures in Southeast Asia’s largest economy. The country’s central bank expects that the inflation figure may reach 0.4 percent (month-on-month, m/m), considerably higher than the historic average in October.

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It remains unknown whether President Joko Widodo (Jokowi) and Vice President Jusuf Kalla will announce the names of the ministers inside the new cabinet today. On Wednesday (22/10) it was reported that a number of ministerial candidates failed to pass the screening of the Corruption Eradication Commission (KPK) and the Financial Transaction Reports and Analysis Center (PPATK), which made Jokowi decide to seek for additional candidates. The market, however, would like to know the composition of the cabinet as soon as possible.

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The pace of inflation in Indonesia may reach 0.36 percent month-to-month (m/m) in October 2014, slightly higher than inflation in the preceding month (0.27 percent m/m). This forecast for October inflation is higher than this month’s historic average. Usually October tends to show low inflation or deflation as the harvest season commences and other inflationary pressures have also eased after the inflation peak in the June-August period (brought about by seasonal matters such as Islamic celebrations and the start of the new school year).

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Agus Martowardojo, Governor of Bank Indonesia, is highly supportive of president-elect Joko Widodo’s plan to increase prices of subsidized fuels before the end of the year as this move would help to diminish the country’s structural current account deficit as well as improve the trade balance. Widodo, who will assume office on 20 October 2014, is expected to raise prices of subsidized fuels by between IDR 1,000 and 3,000 per liter, and relocate state funds to social and economic development.

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Last week (22-26 July 2013), Indonesia's main stock index (IHSG) ended 1.39 percent down at 4,658.87. The daily value of transactions on the regular market narrowed to an average of IDR 3 trillion (USD $300 million) from IDR 3.84 trillion in the previous week. Foreigners still recorded net sales amounting to IDR 92.9 billion (USD $9.3 million). Lack of positive sentiments, financial results of companies that were below expectation and the continued weakening of the rupiah against the US dollar resulted in the decline of the index.

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Investment realization in Indonesia grew 30.2 percent to IDR 192.8 trillion (USD $19.8 billion) in the first six months of 2013 (compared to the same period last year). This result implies that 49.4 percent of the investment target for full 2013 has been achieved. The Indonesia Investment Coordinating Board (BKPM) aims to collect IDR 390.3 trillion in investments this year. This target is divided in domestic direct investment (DDI) of IDR 117.7 trillion and foreign direct investment (FDI) of IDR 272.6 trillion.

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Indonesia's main stock index (IHSG) increased 3.98 points to close at 4,724.41 on the last trading day (19/07). During last week, the index rose a limited 1.97 percent amid the context of a weakening IDR rupiah (Indonesia's currency even fell below the psychological boundary of IDR 10,000 against the US dollar). The IHSG's performance last week was mainly supported by rising shares in the country's finance, property, construction and metal mining sectors, while the cement and plantation sectors were corrected.

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The Indonesian rupiah (IDR) is experiencing one of its worst losing streaks in a decade. On Friday (19/07), the currency weakened to IDR 10,070 against the US dollar, which implies a devaluation of 4.14% in 2013 so far. The central bank of Indonesia, Bank Indonesia, does all it can to support the currency: the country's lender of last resort supplies dollars to the market triggering the reduction of foreign reserves from USD $105 million at end-May to $98 million at end-June, and raised its benchmark interest rate (BI Rate) by 50 bps to 6.50%.

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Indonesia's main stock index (IHSG) went up 0.89 percent to 4,720.44 on Thursday (18/07). The index was supported by developments in the United States. On Wednesday (17/07), Ben Bernanke spoke to the US Congress and said that the Federal Reserve is likely to continue its bond-buying program in 2013 and may gradually withdraw the quantitative easing program in 2014. But only if economic recovery of the US provides the good context. This message supported the IHSG although foreign investors continued to record a net sale.

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Retail sales in May 2013 rose 1.5 percent (month to month) or 8.6 percent (year on year) in Indonesia according to a publication of Indonesia's central bank (Bank Indonesia) released on Tuesday evening (16/07). The report made a positive impact on today's trading day as stocks in Indonesia's consumer goods sector rose 2.5 percent. Indonesia's main stock index (IHSG) gained 0.75 percent to end at the level of 4,679.00 points. Foreigner investors are still mostly avoiding the Indonesian stock market, but did record a net purchase today.

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Amid widespread profit taking, Indonesia's main stock index (IHSG) was able to post another day of limited growth on Tuesday (16/07). Asian stock indices, including the IHSG, were supported by rising American stock indices on Monday (15/07). Investors seem to be confident that Q2-2013 results of various Indonesian companies are positive and therefore engaged in stock trading although foreign investors were still mostly selling their Indonesian assets. At the end of today's trading day, the IHSG rose 0.18 percent to 4,644.04.

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Today, Bank Indonesia surprised many analysts and investors by raising its benchmark interest rate by 50 bps to 6.50 percent. Indonesia's central bank assessed that this measure is the correct one with regard to supporting the IDR rupiah (which is one of the worst Asian currencies against the US dollar this year) and to fight higher inflation after the government decided to cut fuel subsidies in June. It expects inflation to peak in July at about 2.3 percent (month to month) but to moderate soon afterwards.

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Although the main stock index of Indonesia (IHSG) ended on a positive note last Friday (05/07) by rising 0.46 percent to 4,602.81, foreign investors still sold a net IDR 262 billion (USD $26.5 million) worth of shares, while the value of transactions in the regular market was only IDR 3.17 trillion (USD $320.2 million). The rise of the IHSG at the end of last week was more due to support from Asian indices that were up after the European Central Bank and Bank of England kept interest rates at 0.5 percent.

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Indonesia's central bank (Bank Indonesia) expects that economic growth of Indonesia in 2013 will not meet the government's target as has been set in the revised State Budget (APNB-P). Last month, both government and parliament of Indonesia agreed on a revised GDP growth assumption of 6.3 percent. However, Bank Indonesia believes that, due to slowing domestic consumption and investments in the current global economic context, the growth is more likely to fall between 5.8 and 6.2 percent.

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