On 14 December 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 the central bank’s interest rate policy, an update on palm oil, the middle income trap, November car sales, the performance of the rupiah exchange rate, legal matters regarding mining, and more.

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Indonesia’s central bank decided to keep its benchmark interest rate (BI rate) at 7.75 percent at Thursday’s Board of Governors’ Meeting (11/12). The Lending Facility and Deposit Facility were kept at 8.00 percent and 5.75 percent, respectively. The central bank is convinced that the current interest rate levels are effective to combat short-term inflationary pressures (triggered by the implementation of higher subsidized fuel prices in mid-November) pushing it back to the target corridor of between 3 and 4 percent (y/y) in 2015.

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On Monday morning (08/12), the Indonesian rupiah exchange rate quickly plunged after the release of weak macroeconomic data from Japan and China, two important trading partners of Indonesia. Economic growth in Japan, the world’s third-largest economy, contracted 0.5 percent (quarter-to-quarter) in Q3-2014, while Chinese imports fell 6.7 percent (year-on-year) in November 2014. As a result the Indonesian rupiah had depreciated 0.54 percent to IDR 12,365 per US dollar by 11:30 am local Jakarta time, the weakest level in six years.

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On 7 December 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 the country’s November inflation, October trade balance, a manufacturing update, the slight improvement in the Corruption Perceptions Index, investments, IPOs on the Indonesia Stock Exchange, and more.

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The central bank of Indonesia announced that the country’s foreign exchange reserves declined USD $900 million to USD $111.1 billion at the end of November 2014. The decline was primarily due to government debt repayments and the central bank’s use of foreign exchange to engage in monetary management. Meanwhile, the Indonesian rupiah exchange rate - which had touched six year lows in recent days - appreciated 0.08 percent to IDR 12,299 per US dollar on Friday (05/12) based on the Bloomberg Dollar Index.

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Based on the Bloomberg Dollar Index, Indonesia’s rupiah exchange rate depreciated 0.24 percent to IDR 12,301 per US dollar on Wednesday (03/12), the weakest level of Indonesia’s currency in almost six years, as the US dollar rallied, pushing Japan’s yen to a seven-year low, Malaysia’s ringgit to a five-year low, while the Russian ruble experienced record falls. Meanwhile, the euro touched a two-year low amid the sluggish economic growth forecast in the Eurozone. Policies of central banks across the globe have led to significant currency volatility.

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The HSBC Markit Purchasing Managers’ Index (PMI) of Indonesia contracted to 48.0 in November 2014 (from 49.2 in the previous month), the weakest level since reporting began in early 2011 amid weak demand and higher fuel prices, official data showed on Monday (01/12). A reading below 50.0 indicates that manufacturing activity has contracted. Su Sian Lim, Economist at HSBC, said that the recent subsidized fuel price, rupiah depreciation, and weak external demand were the key drivers for this poor performance.

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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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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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Global rating agency Fitch Ratings affirmed Indonesia’s Sovereign Credit Rating at BBB-/stable outlook (investment grade status) on Thursday (13/11). This rating affirmation by the credit rating agency can be regarded as international recognition of prudent fiscal policy in Southeast Asia’s largest economy amid global uncertain times. Policy responses pursued by both the government and central bank of Indonesia have been well received by Fitch Ratings and managed to safeguard economic stability.

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The upward movements of both American and European stock indices on Friday (03/05/13) provided good support for today's performances of indices in Asia, including the Indonesia Stock Index (IHSG). After having been hit hard for two consecutive trading day's, the IHSG rebounded despite foreign investors still selling off their Indonesian stocks. Others, however, use this momentum to hunt for stocks that are now considered cheap after last week's fall.

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International financial services company Standard & Poor's (S&P) downgraded its outlook on Indonesia’s BB+ rating from positive to stable as the agency assessed that Indonesia's reform momentum is fading and the external profile is weakening. The decision came as a surprise as Indonesia's government had just declared to reduce its massive spending on fuel subsidies starting from next month. These subsidies were the main reason why S&P had not upgraded Indonesia's credit rating to investment grade yet.

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The Indonesia Stock Index (IHSG) fell victim to large profit taking on Thursday's trading day (02/05/13) after having set a new record yesterday. Market players are probably concerned about the 'May Cycle' which refers to the traditional fall of the IHSG in the month of May. But negative market sentiments were particularly brought on by Standard & Poor’s revised outlook on Indonesia’s BB+ rating from positive to stable. It triggered a 1.32 percent correction in Indonesia's stock index.

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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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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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Today, the Jakarta Composite Index (IHSG) was under pressure from the start of the trading day. It was negatively affected by mixed Asian indices as well as yesterday's mixed American indices (where the Dow Jones Index weakened whereas other American indices gained). It made investors, in particular foreign investors, eager to sell parts of their stock portfolios. At the end of today's trading day, the IHSG stood at 4,994.52, a 0.34 percent fall compared to yesterday.

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Positive moving stock indices in America and Europe on Tuesday (responding to various good corporate Q1-2013 data) were able to offset negative influence caused by weak manufacturing data from China and Europe. As a result Asian indices rose on Wednesday, including the Indonesia Stock Index (IHSG) which managed to reach beyond the psychological boundary of 5,000 points. The index ended at the level of 5,011.61, a 0.73 percent gain compared to the previous trading day.

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Rising American and European stock indices last Friday, helped to support Asian stock indices today (22 April 2013), including the Indonesia stock index (IHSG). However, the ongoing drama brought on by last Saturday's earthquake in China, impacted on the China stock index as well as on other Asian stock indices, including the IHSG. As the IHSG has been showing signs that it is overbought, market participants preferred to sell portions of their stock portfolios, resulting in a limited fall of the IHSG.

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Despite non-conducive market sentiments, there was no stopping to the Indonesia stock index (IHSG) as it managed to reach its next psychological boundary on Thursday 18 April: 5,000 points. A fall in American energy and telecommunication stocks on the previous day - after corporate data indicated less-than-expected performances in the first quarter - buried hopes that the Dow Jones Index would hit another peak. As a result Asian stock indices were mostly negative.

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