On 5 April 2015, 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 an analysis of March inflation, the new letter of credit (L/C) policy for key commodity exports, the appointment of Pertamina as operator of the Mahakam block, and more.

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After two straight months of deflation, Indonesia saw its consumer price index rise again in March 2015. According to data from Statistics Indonesia (BPS), Indonesia recorded inflation of 0.17 percent month-to-month (m/m) in March. This result was in line with analysts’ projections. On a year-on-year (y/y) basis, Indonesian inflation rose to 6.38 percent from the same month last year, slightly higher than the 6.29 percent (y/y) of inflation recorded in February. The country’s core inflation rose to 5.04 percent (y/y) in March.

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Indonesian stocks continued to climb strongly after the market opened on Tuesday (31/03). The country’s benchmark Jakarta Composite Index (IHSG) surged nearly one percent. Several external and internal factors are at play here. Firstly, the US Federal Reserve indicated over the past week that it may not raise its key interest rate too soon, leading to investors’ appetite for emerging market assets. Secondly, Chinese policymakers provided room for increased infrastructure spending and monetary stimulus.

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The central bank of Indonesia (Bank Indonesia) estimates that Indonesia’s inflation rate in March will be around 0.3 to 0.4 percent month-to-month (m/m), slightly higher than its earlier forecast of around 0.28 percent (m/m). Later this week, Statistics Indonesia will release the country’s March inflation figure. In February inflation eased to 6.29 percent year-on-year (y/y) - from 6.96 percent (y/y) in the preceding month - amid declining fuel and food prices despite some inflationary pressures caused by higher rice prices.

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Whereas the Indonesian rupiah is depreciating on Monday’s trading day (30/03), Indonesian stocks climb significantly. At 14:15 pm local Jakarta time, the benchmark stock index (Jakarta Composite Index) had gained 0.93 percent to 5,444.27 points. In line with other Asian markets, Indonesia’s stock index felt the positive impact of Fed Chief Janet Yellen’s statements on Friday (27/03). Yellen indicated in a speech in San Francisco that it is riskier to raise US interest rates too fast than to raise them too slowly.

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Despite some protests in Indonesia’s capital city of Jakarta, the Indonesian government raised the price of subsidized low-octane gasoline (premium) from IDR 6,900 (USD $0.53) per liter to IDR 7,400 (USD $0.56) over the weekend (a 7.2 percentage point price increase). Meanwhile, the price of subsidized diesel (solar) was raised from IDR 6,400 (USD $0.49) to IDR 6,900 per liter (+7.8 percent). The price increase was considered necessary as crude oil prices had increased over the past month, while the rupiah continued to depreciate.

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The Indonesian government may raise the price of subsidized gasoline for April 2015 as the Indonesian Crude Price (ICP) rose through February and March from USD $52 per barrel to USD $57 per barrel based on data from the upstream oil & gas regulator SKK Migas. After the Indonesian government drastically reduced fuel subsidy spending at the start of 2015, subsidized gasoline prices are now set each month, in line with price fluctuations on the world market. For subsidized diesel the government provides a fixed IDR 1,000 per liter.

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The central bank of Indonesia (Bank Indonesia) decided to maintain its benchmark interest rate at 7.50 percent at today’s Board of Governors’ Meeting. The overnight deposit facility rate and lending facility rate were maintained at 5.50 percent and 8.00 percent, respectively. Bank Indonesia considers that the current interest rate environment is in line with its target to push inflation within its target range of 3.0-5.0 percent (y/y) in 2015 and to curb the country’s current account deficit to a range of 2.5-3.0 percent of gross domestic product (GDP).

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According to the latest survey of Bank Indonesia (the central bank of Indonesia), the country’s January retail sales accelerated 10.4 percent year-on-year (y/y), up from the 3.3 percentage point growth pace (y/y) in the preceding month. Retail sales in the first month of the year in Southeast Asia’s largest economy accelerated because of higher sales of information & communication equipment (+29.9 percent y/y) as well as food, beverages & tobacco products (+15.1 percent y/y).

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On 8 March 2015, 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 an analysis of the rupiah performance, the latest inflation update, gender equality in Indonesia, the impact of slowing credit growth on the risk outlook in Indonesia’s banking sector, and more.

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The Indonesian rupiah exchange rate continued to depreciate on Monday (02/03). According to the Bloomberg Dollar Index, Indonesia’s currency depreciated 0.30 percent to IDR 12,970 per US dollar, a six-year low. Apart from general bullish US dollar momentum in recent months (amid monetary tightening in the USA), the rupiah weakened due to Bank Indonesia’s signals that it tolerates a weaker currency in a move to boost exports (limiting the country’s current account deficit), and due to China’s interest rates cut.

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In a surprise move, the central bank of Indonesia (Bank Indonesia) decided to lower its key interest rate (BI rate) by 25 basis points to 7.50 percent at the Board of Governor’s Meeting on Tuesday (17/02). The deposit facility rate (Fasbi) was also lowered by 25 basis points (to 5.50 percent), while the lending facility rate remained steady at 8.00 percent. In a press release the central bank stated that the current policy direction is estimated to moderate the country’s wide current account deficit further, while inflation remains under control.

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The Indonesian rupiah exchange rate appreciated and Indonesian stocks rose on Wednesday (04/02) on the back of rallying oil prices, a successful bond auction, easing tensions in Europe, and weak US factory orders. Based on the Bloomberg Dollar Index, Indonesia’s rupiah appreciated 0.21 percent to IDR 12,630 per US dollar on Wednesday (04/03). Meanwhile, the benchmark stock index of Indonesia (Jakarta Composite Index, abbreviated IHSG) climbed 0.45 percent to 5,315.28 points.

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The trade balance of Indonesia improved in 2014. Over the whole year of 2014 Indonesia posted a USD $1.88 billion trade deficit, significantly better than the USD $4.08 billion deficit it recorded a year earlier. Today (02/02), Statistics Indonesia announced that Indonesia posted a USD $0.19 billion trade surplus in the last month of the year after having recorded a USD $0.42 billion trade deficit in the preceding month. The improved performance is mainly due to the country’s growing non-oil & gas surplus and narrowing oil & gas deficit.

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In line with the performance of other Asian emerging currencies, Indonesia's rupiah exchange rate appreciated on Monday (12/01) as the fall in US wages (released late last week) caused speculation that the Federal Reserve will - for now - delay its plan to start raising US borrowing costs. Despite solid growing US non-farm payrolls in December 2014, US wages (average hourly earnings) fell the most in eight years. Indonesia’s rupiah appreciated 0.38 percent to IDR 12,599 per US dollar according to the Bloomberg Dollar Index.

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The latest survey of Indonesia’s central bank indicates that consumer confidence fell in December 2014. The central bank’s Consumer Confidence Index fell 3.6 points to 116.5 in the last month of 2014 (a score above 100 signals optimism among consumers) due to the impact of higher subsidized fuel prices implemented in November 2014. This move triggered higher prices of products and services. The central bank’s Consumer Confidence Index is based on interviews with 4,600 households in 18 Indonesian cities.

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Indonesia’s benchmark stock index (Jakarta Composite Index) fell 0.43 percent to 5,220.00 points on Monday (05/01) amid profit taking on a relatively quiet trading day on the Indonesia Stock Exchange. Meanwhile, the Indonesian rupiah exchange rate depreciated 0.55 percent to IDR 12,614 per US dollar according to the Bloomberg Dollar Index as concerns about Greece exiting the euro intensified and boosted US dollar demand. Moreover, market participants were still reacting to Indonesia’s latest trade and inflation data.

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Indonesia’s inflation pace accelerated in December 2014, exceeding estimations of analysts and Indonesia’s central bank. December inflation, 2.46 percent (m/m) or 8.36 percent (y/y), accelerated due to the impact of higher subsidized fuel prices (introduced in November) and volatile food prices (fluctuating rice and chili prices at the year-end). Other factors that contributed to high inflation in 2014 were higher electricity tariffs for households and industries, the higher price of 12 kg LPG, and an airfare adjustment.

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Indonesia’s inflation reached 2.46 percent month-to-month (m/m) in December 2014 due to the impact of higher subsidized fuel prices implemented on 18 November 2014. On a year-on-year (y/y) basis, Indonesia’s inflation was recorded at 8.36 percent, slightly lower than the result in 2013 (8.38 percent). Inflation has been high in 2013 and 2014 as the Indonesian government raised prices of subsidized fuels in both years in an attempt to relieve fiscal pressures brought about by costly oil imports.

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A team of the International Monetary Fund (IMF), led by David Cowen (advisor at the IMF’s Asia and Pacific Department), visited several Indonesian cities in the first three weeks of December 2014 to conduct research on the economic fundamentals of Southeast Asia’s largest economy. This research included the study of recent macroeconomic developments as well as the formulation of prognosis scenarios for the short and middle term. The IMF team held discussions with the government, Bank Indonesia, private entrepreneurs and scholars.

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