International credit rating agency Moody's Investors Service is positive about the subsidized fuel price hike that was conducted by the government of Indonesia on Monday (17/11) as it shows commitment of the government to implement reforms that support the strengthening of the economy, such as curbing Indonesia’s fiscal and current account deficits. Moody’s estimates that these developments are positive for the country’s sovereign rating (now at Baa3/stable) as well as for state-owned energy firm Pertamina (Baa3/stable).

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Main news headlines in Indonesia still cover the higher subsidized fuel prices implemented starting from the early hours of Tuesday (18/11). The previous evening, Indonesian President Joko Widodo had announced that prices of subsidized gasoline and diesel were to be raised by over 30 percent, immediately leading to long queues at local gas stations as well as public outcry as people’s purchasing power will diminish. Analysts and economists, however, agree that this move is correct and can lead to structurally higher GDP growth.

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The central bank of Indonesia decided to raise its key interest rate (BI rate) by 25 basis points from 7.50 percent to 7.75 percent on Tuesday (18/11) in a response to the subsidized fuel price hike. One day earlier, Indonesian President Joko Widodo had announced that prices of subsidized gasoline and diesel were to be raised by more than 30 percent starting from midnight in an effort to create more fiscal space for economic and social development. This move is expected to result in accelerated inflation in Southeast Asia’s largest economy.

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Indonesian President Joko Widodo announced yesterday evening (17/11) that prices of subsidized fuels will be raised by over 30 percent starting from midnight in an effort to reduce state expenses on non-productive matters. Low-octane gasoline (premium) will now cost IDR 8,500 (USD $0.70) per liter, while diesel now costs IDR 7,500 (USD $0.62) per liter. This sudden announcement immediately led to long queues at local gas stations as people still had three hours to enjoy cheaper fuel rates.

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After weeks of uncertainty, Indonesian President Joko Widodo announced on Monday (17/11) that prices of subsidized fuels (gasoline and diesel) are to be raised by IDR 2,000 (USD $0.16) per liter starting from midnight. Gasoline (premium) is to be raised from IDR 6,500 to IDR 8,500 per liter, while diesel will be raised from IDR 5,500 to IDR 7,500 per liter. Earlier it was speculated that an IDR 3,000 per liter price hike would be announced. However, as global oil prices have declined sharply, this was considered an unnecessary burden for the people.

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After speculation started to rise that Indonesia would perhaps not raise prices of subsidized fuels (gasoline and diesel) in November as recent declining global oil prices have managed to somewhat relieve the government’s budget deficit, Indonesian Finance Minister Bambang Brodjonegoro said over the weekend that the Indonesian government is still eager to raise these prices within a couple of weeks. However, he added that the price hike will be less than IDR 3,000 (USD $0.25) per liter.

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The central bank of Indonesia (Bank Indonesia) announced today (after the Board of Governors’ meeting) that it keeps the benchmark interest rate (BI rate) at 7.50 percent. The lending facility rate and the deposit rate are maintained at 7.50 percent and 5.75 percent, respectively. Agus Martowardojo, Governor of Bank Indonesia, said that interest rates were maintained as the country’s current account deficit narrowed to 3.07 percent of gross domestic product (GDP) in the third quarter of 2014.

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Indonesian consumers are concerned about the looming subsidized fuel price hike this month according to the latest survey of Nielsen, a global information and measurement company. Based on the Nielsen Global Survey of Consumer Confidence and Spending Intentions (covering the third quarter of 2014), 28% of respondents said that higher prices of subsidized fuels are among their top two main concerns. In the previous survey (which covered Q2-2014), the subsidized fuel price hike was not even mentioned among the top five concerns.

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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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Apparently, yesterday's decline was only a small stumbling block for the Indonesia Stock Exchange (IHSG). Indonesia's main indicator rebounded strongly after feeling the effects of stronger American stock indices that were positively influenced by a rise in Housing Index and Consumer Confidence. Moreover, the IHSG accelerated its gain after Asian stock markets and the opening of Europe's stock indices were positive.

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