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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Global credit rating agency Fitch Ratings reminded the investor community about the ongoing risk of a sudden reversal of capital inflows in Indonesia. In the first two months of 2014, capital inflows have been strong, reaching a total of USD $2.3 billion, a 16 percent increase from the same period last year, backed by renewed confidence in Indonesia's economic fundamentals as the current account deficit and inflation have moderated since the end of last year. However, several risks are looming causing potential volatility of capital flows.

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It was decided at the Board of Governors' Meeting (on 13 March 2014) to hold the benchmark interest rate (BI rate) at 7.50 percent, the lending facility rate at 7.50 percent and the deposit facility rate at 5.75 percent. The policy is consistent with ongoing efforts to guide inflation back towards its target corridor of 4.5±1 percent in 2014 and 4.0±1 percent in 2015, as well as to reduce the current account deficit to a more sustainable level. Recent developments indicate that the rate of inflation is under control and the current account deficit is shrinking.

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Credit growth in Indonesia's banking sector slowed in January 2014 to a growth pace of 20.9 percent (year-on-year), down from 21.4 percent (yoy) in the previous month. Total disbursed credit in January 2014 stood at IDR 3,287 trillion (USD 285 billion). The slowing pace of credit disbursement in Southeast Asia's largest economy is in accordance with the central bank's target to reduce credit growth in the banking sector to between 15 and 17 percent (yoy), said Agus Martowardojo, Governor of Bank Indonesia.

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Tomorrow (13/03), Bank Indonesia will hold its next Board of Governor's Meeting to discuss general policies in the monetary field. As usual, market participants are highly interested in the central bank's assessment of the country's economic fundamentals and interest rates policy. However, predictions about Bank Indonesia's stance toward its benchmark interest rate (BI rate) are mixed. Some expect it to be kept at 7.50 percent as inflation has been under control. Others anticipate a 0.25 percent hike due to the country's weak exports.

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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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