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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Forecasts for economic growth in Indonesia in 2014 are still optimistic. The government of Indonesia targets a 6 percent growth rate, while the country's central bank (Bank Indonesia) expects GDP growth in the range of 5.8 to 6.2 percent. Although these forecasts clearly fall short of the target set in the country's National Medium Term Development Plan (RPJMN) - which mentions annual GDP growth of between 6.3 and 6.8 percent - the forecasts are still rather positive given the global uncertain and volatile economic context in recent years.

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The Governor of Indonesia's central bank (Bank Indonesia), Agus Martowardojo, expects that the pace of inflation in Indonesia in January 2014 is most likely to become one of the lowest January inflation rates in the last five years although it remains important that food supplies are maintained at safe levels. The higher price of LPG in Southeast Asia's largest economy is expected to contribute only slightly to January's inflation rate. Martowardojo also stated that Indonesia's macroeconomy is stable at the start of a new year.

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The performance of the Indonesia rupiah exchange rate on Friday morning (10/01) was rather stagnant against the US dollar (the latter's movement was mixed against currencies in the Asia-Pacific) although the rupiah was up 0.12 percent to IDR 12,178 per US dollar at 13:42 local Jakarta time based on the Bloomberg Dollar Index. Positive sentiments are caused by Indonesia's narrowing current account deficit (possibly less than 3 percent of GDP in Q4-2013) and rising foreign exchange reserves at end-December 2013.

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Indonesia's central bank (Bank Indonesia) kept its benchmark interest rate (known as the BI rate) at 7.50 percent in today's Board of Governor's meeting (09/01). The institution decided not to change its interest rate because it estimates that the inflation target for 2014 is not in jeopardy (4.5 percent) while Indonesia's economic growth prospects for 2014 and 2015 remain unchanged. Also the overnight lending facility as well as deposit facility rate (Fasbi) were kept at 7.50 percent and 5.75 percent respectively.

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Supported by legislative and presidential elections, car sales in Indonesia are expected to grow between five and ten percent to 1.30 million total vehicles in 2014. These elections are estimated to boost the domestic money flow due to increased economic activity in Southeast Asia's largest economy. Consumption goods such as cars and food & beverage products are expected to feel the impact of this development and may offset the negative impact brought on by the weak rupiah, high inflation and the high interest rate environment.

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On Thursday (02/01), Statistics Indonesia (BPS) released the December 2013 inflation figure of Indonesia as well as the calender inflation rate for full-year 2013. Higher food prices and house prices were the main contributors to the 0.55 percent inflation rate in December 2013. Seasonal celebrations, like Christmas and New Year, always translate into higher inflationary pressures in Southeast Asia's largest economy. Higher fuel prices were the main contributor to the 8.38 percent inflation rate in full-year 2013.

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Ahead of the new year, the Indonesia rupiah exchange rate continues its downward trend on Monday (30/12). Bank Indonesia's Jakarta Interbank Spot Dollar Rate (JISDOR) fell to IDR 12,270 per US dollar from IDR 12,260 on the previous trading day. Due to the improving US economy, the US dollar keeps appreciating against the majority of emerging currencies. At most local Indonesian banks, the rupiah is traded significantly above the psychological level of IDR 12,000 per US dollar.

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The central bank of Indonesia (Bank Indonesia) expects that the country’s inflation figure in December 2013 (month-to-month) will be below 0.5 percent. Up to the third week of December, inflation increased 0.36 percent according to data from Bank Indonesia. Considering the month of December always brings along inflationary pressures due to seasonal celebrations (Christmas and New Year), Bank Indonesia's inflation estimate of below 0.5 percent can be considered rather low.

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The DBS Bank expects that Indonesia's inflation rate will reach 8.2 percent (year-on-year) by the end of 2013, supported by a low monthly inflation rate in the last month of the year. The DBS Bank believes that the pace of inflation in December 2013 will be slightly higher than the country's November inflation (0.12 percent). In the period January to November 2013, inflation in Southeast Asia's largest economy has accumulated to 7.79 percent (yoy). The bank also stated that it expects inflation to reach 6.7 percent in full-year 2014.

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The release of Indonesia's April deflation figure (0.10%) and orderly May Day demonstrations provided a good environment for investors to continue purchasing Indonesian stocks (despite uncertainty about Indonesia's subsidized fuel policy. Moreover, positive Asian stock indices - in combination with positive European openings on Wednesday - made the Indonesia Stock Index (IHSG) rise to a new record level of 5,060.92 points on Wednesday (01/05/13), a 0.53 percent gain.

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Even though American and European stock indices were positive on Monday (in fact S&P 500 set a new record) it did not impact directly on the performance of Indonesia's main stock index (IHSG) on Tuesday (30/04/13). In the first session, the IHSG's peak at 5,014 points was only short-lived and quickly lowered again. In the second session, however, the index started to show more solid growth (despite the ongoing uncertainty about Indonesia's subsidized fuel price) as Asian stock markets were mostly up.

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After two consecutive days of decline, the Jakarta Composite index (IHSG) had no intention to continue its fall. Indonesia's main index was able to rise 0.43 percent to 4,999.75 points on Monday 29 April 2013. Stocks that had been weakening in recent days were popular among investors. Moreover, both Asian stock indices and foreign net purchases of Indonesian stocks supported Indonesia's index, although it fell short of reaching the psychological boundary of 5,000 points.

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One piece of evidence of international confidence in the Indonesian economy is the steady upgrades in the country's credit ratings by international financial services companies such as Standard & Poor's, Fitch Ratings and Moody's. In late 2011, Fitch Ratings was the first to reinstate Indonesia's investment grade status after a 14-year hiatus. In January 2012, Moody’s followed suit citing the country’s resilient economy. S&P may follow soon, depending on the fuel price hike issue.

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Last week Indonesia's main stock index (IHSG) was mixed with a weakening trend. The index lost 19.9 points, equivalent to 0.40 percent of its value. During the last month, the index consolidated within the range of 4,800 and 5,030 points. Foreign funds continued to pour in and trade volume remained high although below average trade in the last three weeks. In fact, our technical indicators are showing signs that Indonesia's main stock index has become saturated.

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On Friday's trading day, the Indonesia Stock Index (IHSG) started in an upward direction. However, as it felt the impact of European stock indices, that mostly opened lower, the IHSG weakened 0.32 percent to 4,978.51 points. Moreover, most other Asian indices were down (except for Hong Kong's HSI) and thus contributed to the IHSG's fall. Market participants also seem to fear the annual 'May Cycle' of the IHSG, which involves the traditional large-scale selling of IHSG stocks.

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The heavily subsidized fuel price of Indonesia is likely to be raised next month according to Indonesian media sources. Various high officials, including Economic minister Hatta Rajasa, discussed the possibility to raise the fuel price from IDR 4,500 (USD $0.46) to IDR 6,500 (USD $0.67) per liter starting from May. This increase will only apply to private passenger cars, and not to motorcycles and public transportation. However, president Susilo Bambang Yudhoyono has not made up his mind yet.

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Indonesia's main stock index, the IHSG, continued its rally on Wednesday 17 April due to increased US monthly Housing Starts, decreased US inflation, as well as financial results of companies that indicated revenues and net profits exceeded expectations. Moreover, the IMF upgraded its outlook for East Asia's economic, which made investors buy stocks. Within Indonesia, there was enthusiasm regarding Q1-2013 corporate results and dividend payouts, which offset uncertainties about the new fuel policy.

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Most of us expected the Jakarta composite index (IHSG) to weaken on Tuesday 16 April 2013 amid mixed Asian stock indices and significantly weakened American and European indices on Monday (that responded to reports about both China's slowing economic growth and weak economic figures of America). Moreover, bomb explosions at the finish line of the marathon of Boston were expected to complicate the performance of the IHSG. But concerns turned out in vain.

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The latest World Bank report of East Asia and the Pacific states that "driven by strong domestic demand, economies of developing East Asia and Pacific continue to be an engine of global growth, growing at 7.5 percent in 2012 - higher than any other region in the world." Amid a recovering global economy the report projects that regional growth will rise to 7.8 percent in 2013 and ease to 7.6 percent in 2014.

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