Contrary to what most analysts expected, Indonesia experienced deflation of 0.35 percent in September 2013. The figure was released today (01/10) by Statistics Indonesia. Deflation was particularly triggered by easing food prices (including onions, peppers, beef, fresh fish and carrot) and lower tariffs for air and train transportation as well as inter-city transport fares. Previously, it was expected that Indonesia would record low inflation (less than 1 percent) in September. Year-on-year inflation eased to 8.40 percent (from 8.79 in August).

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Singapore-based DBS Group, a leading financial services group in Asia, expects Indonesia's gross domestic product (GDP) growth to reach 5.8 percent in 2013, while it forecasts growth of 6.0 percent in 2014. This year, Indonesia has to cope with ups and downs due to several domestic and foreign factors. According to the institution, two issues stand out as being significantly influential this year. These are the government's decision to increase prices of subsidized fuels in late June and the country's sharply depreciating rupiah.

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The central bank of Indonesia (Bank Indonesia) has raised its benchmark interest rate (BI rate) and deposit facility rate (Fasbi) by 25 basis points to 7.25 percent and 5.50 percent respectively on Thursday (12/09). It is the fourth time since June that Bank Indonesia raised the interest rate. Previously, it maintained a historic low BI rate of 5.75 percent for 16 months. The increase is one of the measures taken to control inflation, stabilize the rupiah exchange rate and to ensure that the current account deficit is managed to a sustainable level.

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The International Monetary Fund (IMF) expects the economy of Indonesia to expand by 5.25 percent in 2013, which is considerably lower than the IMF's earlier forecast. In its World Economic Outlook, released in April 2013, the institution set economic growth of Indonesia at 6.3 percent. However, after emerging markets were hit by large capital outflows when the Federal Reserve began to speculate about an end to its quantitative easing program (QE3), Indonesia's GDP growth assumptions were quickly revised downwards.

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Indonesia's inflation rate in August 2013 was 1.12 percent (month to month) according to Statistics Indonesia (BPS). This result is rather positive as many analysts projected a higher outcome for August inflation. Last month (July), inflation accelerated by 3.29 percent as the impact of higher subsidized fuel prices was felt in combination with weak government policies regarding food quotas, Muslim celebrations (Ramadan and Idul Fitri) as well as the beginning of the news school year.

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Apart from Indonesia's current account deficit, another indicator that is closely watched by the investor community is the country's inflation rate. After subsidized fuel prices were raised in late-June, inflation soared to 8.61 percent in July (YoY), weakening people's purchasing power (as domestic consumption accounts for about 55 percent of economic growth), thus eroding economic growth, investments and the currency. On Monday (02/09), Statistics Indonesia will release the official August inflation rate.

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Indonesia's central bank (Bank Indonesia) decided to raise its benchmark interest rate (BI rate) by 50 basis points to 7.0 percent on Thursday (29/08) in order to support the weakening rupiah amid slowing global economic growth. The rupiah has been on a long losing streak and has fallen to its lowest level against the US dollar in four years. The BI rate had already been raised in June and July from a historically low 5.75 percent to 6.50 percent. Today, an extra meeting was scheduled to discuss policy measures.

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Indonesia's banking sector is expected to have no difficulties in coping with current financial turmoil in Indonesia's economy. The country's banking industry is much stronger and healthier now than when the crisis in 1997-1998 or 2008 erupted. There have been reports that a few small banks have used the central bank's overnight lending facility, but various stress tests indicate that the banking sector is strong. Gross non performing loans per June 2013 have been kept below1.9 percent, which is significantly lower compared to previous periods.

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Governor of the central bank of Indonesia (Bank Indonesia) Agus Martowardojo said that the central bank will respond to current market conditions on Thursday (29/08). Bank Indonesia will have an extra board meeting to discuss measures to safeguard Indonesia's financial stability. It will touch matters such as macro-prudential policy, the interest rate and currency control. Normally, the central bank meets once per month but Martowardojo felt that this extra meeting is needed as the next scheduled meeting (12/09) is too far away.

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Finance minister Chatib Basri said that the Indonesian government should revise its outlook for GDP growth in 2014 from 6.4% (mentioned in the 2014 State Budget) to about 6.0%. A more realistic outlook, which is in line with the current global and domestic financial context, is needed. Global uncertainty due to the possible ending of the Federal Reserve's quantitative easing program has resulted in capital outflows from emerging markets, including Indonesia. Various countries, developed and emerging ones, have lowered outlooks for 2014 GDP growth.

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The central bank of Indonesia (Bank Indonesia) kept its benchmark interest rate (seven-day reverse repo rate) at 4.75 percent at the April policy meeting (19-20 April 2017), while its deposit facility rate and lending facility rate stayed at 4.00 percent and 5.50 percent, respectively. Bank Indonesia considers the current interest rate environment appropriate to face global uncertainties as well as rising inflationary pressures at home.

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The central bank of Indonesia (Bank Indonesia) said it carefully monitors the impact of higher electricity tariffs on the nation's inflation pace in March 2017. This month the government implemented the second phase of its gradual electricity tariff increase program for 900-VA household customers. Indonesia's state-owned electricity company Perusahaan Listrik Negara (PLN) decided to raise the electricity price for 900-VA households three times this year in order to cut energy subsidies and ensure that these subsidies are indeed channeled to the right people.

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The Bank of Indonesia recently resorted to a sudden cut in interest rate (by 25 bps to 4.75 percent) at its 20th October 2016 meeting. This followed a 25 bps reduction in September and thus this is the sixth time this year that the Indonesian central bank has elected to loosen monetary policy.

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An International Monetary Fund (IMF) team, led by Luis E. Breuer, visited Indonesia between 7 and 18 November 2016 to conduct the annual Article IV Consultation. The IMF team exchanged views with Indonesian government officials, Indonesia's central bank (Bank Indonesia), and other public agencies, as well as representatives of the private sector, academics, and students on recent economic and financial market developments and the near-to-medium-term economic outlook.

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The central bank of Indonesia (Bank Indonesia) has become slightly less optimistic about Indonesia's economic growth in the third quarter of 2016. Bank Indonesia revised down its growth projection to below the 5 percent (y/y) mark for Q3-2016 (from an earlier forecast of 5.2 percent). However, the lender of last resort still expects to see a better performance compared to the 4.73 percent (y/y) pace posted in Q3-2015. Meanwhile, low inflation and a strong rupiah could result in another interest rate cut in Southeast Asia's largest economy.

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On September 22, 2016, the central bank of Indonesia (Bank Indonesia) decided to cut its BI seven-day repo rate from 5.25 percent to 5.00 percent, and this has changed parts of the long-term outlook for investors. Bank Indonesia also reduced its lending rate to 5.75 percent (from previous 5.50 percent), and the deposit rate to 4.50 percent (from previous 4.75 percent previously). This is significant because it shows that lending rates and interest rates have dropped to multi-year lows with the current policy changes.

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In line with expectations, Indonesia's inflation rate eased to 2.79 percent year-on-year (y/y) in August 2016, from 3.21 percent (y/y) in the preceding month. Consumer price inflation in Indonesia fell on the back of declining prices after the Islamic celebrations of Ramadan and Idul Fitri ended in July. On a monthly basis, Indonesia recorded deflation of 0.02 percent (m/m) in August. Meanwhile, the manufacturing sector of Indonesia turned positive again.

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Gold investment levels in Asia continue to hold close to their all-time highs, and many regional investors are asking questions about what is next for the bullish trend in precious metals. To answer this question, it is important to take another look at old-fashioned economics as a means for determining how price valuations are likely to unfold in the future. One of the most critical economic forces in these areas is the force of market inflation, and its influence on the yellow metal can be significant depending on the underlying fundamentals present in the global economy.

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The central bank of Indonesia (Bank Indonesia) expects Indonesia's inflation to reach slightly below 1 percent month-to-month (m/m) in July 2016. According to central bank surveys, Indonesia's inflation accelerated in the first and second week of July by 1.18 percent (m/m) and 1.25 percent (m/m), respectively. Juda Agung, Executive Director of Bank Indonesia's Economic and Monetary Policy Department, said inflation tends to peak ahead of - and during - the Idul Fitri holiday (4-8 July) but is set to ease in the third and fourth week.

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Next week Indonesia's financial and stock markets are closed for Idul Fitri (also known as Lebaran or Eid al-Fitr), the celebrations that mark the end of the holy Islamic fasting month (Ramadan). As usual, during the Ramadan month (that started in early June) business activities in Indonesia start to slow and this slowdown will reach its "peak" during the Idul Fitri holiday, a national holiday (from Monday 4 July to Friday 8 July) when some 17.6 million Indonesians who live and work in the bigger cities will return to their places of origin for a couple of days (a tradition called mudik).

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