The central bank of Indonesia (Bank Indonesia/BI) left its benchmark interest rate (BI rate) unchanged at 7.50 percent in the Board of Governor's Meeting on Thursday (13/02/14). This decision was in line with market expectations as several economic indicators have improved. In recent days, the rupiah exchange rate has shown a marked improvement to IDR 12,055 per US dollar (Bloomberg Dollar Index) as pressures on Indonesia's current account balance are easing and Bank Indonesia's foreign exchange reserves are rising.

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Indonesians' consumer confidence has increased in January 2014 according to the latest survey conducted by Indonesia's central bank (Bank Indonesia). The outcome of the survey indicated a rise of Indonesia's Consumer Confidence Index (CCI) from 116.5 in December 2013 to 116.7 in January 2014¹. This index illustrates consumer perceptions of current economic conditions compared to conditions in the previous six months as well as the expectations of Indonesian consumers for economic conditions in the next six months.

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Amid an improving trade balance, Indonesia’s foreign exchange reserves rose to USD $100.7 billion at the end of January 2014, according to a press release of Indonesia's central bank (Bank Indonesia). Compared to December 2013, the reserves increased USD $1.3 billion. These reserves are sufficient to finance 5.7 months of imports or 5.6 months of imports and servicing of government external debt, which is well above the international standard of reserve adequacy at 3 months of imports.

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The use of bitcoin, the hotly debated digital currency that was launched in 2009, is banned by the central bank of Indonesia (Bank Indonesia). This week, Bank Indonesia released a press release in which it states that the bitcoin and other virtual currencies are not considered as currencies nor legal payment instruments in Indonesia. After China, Denmark and Russia, Indonesia has become the next country to ban the use of the bitcoin as it can jeopardize the country's financial stability according to the assessment of the bank.

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The central bank of Indonesia (Bank Indonesia) stated that economic growth during the fourth quarter of 2013 was recorded at 5.72 percent (yoy), thus having increased compared to the previous quarter (5.63 percent, yoy), and which is also higher than Bank Indonesia's estimate (5.7 percent). With this development, the overall economic expansion in 2013 reached 5.78 percent. Bank Indonesia considers that the fundamental condition of Indonesia’s economy is still relatively robust.

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Although China's HSBC Purchasing Managers’ Index (PMI) in January 2014 fell below the 50.0 mark thus indicating contracting manufacturing, other Asian countries, including Indonesia, posted expanding manufacturing. Indonesia's HSBC Manufacturing PMI read 51.0 in the first month of the year, its highest reading since June 2013 and up from 50.9 in December 2013. However, this limited expansion also raised concerns that the policy tightening of Indonesia's central bank (Bank Indonesia) has not been as effective as hoped for.

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Credit growth in Indonesia's banking sector in 2014 is estimated to range between 17 and 18 percent. This estimation is higher than the central bank's target of 15 to 17 percent but lower than credit growth in 2013. According to Indonesia's Financial Services Authority (Otoritas Jasa Keuangan, OJK), this pace of growth is at a safe level. Third party funds are projected to grow 16 to 16.5 percent, while the OJK did not provide an estimation of the loan to deposit ratio (LDR) yet although it did say that the LDR was at a safe level too.

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On Sunday (26/01), Indonesia's National Disaster Mitigation Agency (BNPB) reported that the floods in Jakarta have led to 23 casualties (due to drowning, electrocution or the impossibility for sick people to reach the hospital) in the last two weeks in Indonesia's capital city, while almost 28,000 people are still displaced from their homes. The good news, however, is that in many parts of Jakarta floodwaters have begun to subside since the end of last week although several neighborhoods remain flooded up to this day.

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Contrary to reports last week, the central bank of Indonesia (Bank Indonesia) expects that the country's January inflation rate may exceed 1 percent due to the disturbance of food products distribution amid severe floods in several cities in Indonesia, particularly Jakarta and Manado. Higher food prices are expected to add 0.3 percent to the monthly inflation rate. Apart from the flood issue, higher LPG as well as electricity tariffs (in the industry sector) will also contribute to January 2014 inflation.

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Today (21/01), the government of Indonesia auctions rupiah-denominated state bonds of IDR 10 billion (USD $833 million) in order to reap funds to finance targets set in the government's 2014 state budget (APBN 2014). The bonds, involving the new issuance of SPN12150108 and re-openings of series FR0069, FR0070, and FR0071, have a nominal value of IDR 1 million each. Series SPN12150108 is issued at a discount yield. The central bank of Indonesia (Bank Indonesia) organizes the auction using a multiple price method.

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The central bank of Indonesia (Bank Indonesia) expects to see deflation at 0.15 percent month-to-month (m/m) in February 2016. Bank Indonesia Governor Agus Martowardojo said lower (government) administered prices in combination with low core inflation will be the recipe for deflation in the second month of the year. The lower administered prices that are primarily the cause of deflation consist of fuel prices, air fares and 12-kilogram liquefied petroleum gas (LPG) canisters. In the first month of the year Indonesian inflation accelerated to 4.14 percent (y/y).

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The central bank of Indonesia (Bank Indonesia) is expected to keep its benchmark interest rate (BI rate) relatively high in order to safeguard Indonesia's financial stability in 2016 (instead of seeking accelerated economic growth through a rate cut). Despite easing pressures on inflation and the country's current account balance, Bank Indonesia Governor Agus Martowardojo said that persistent global uncertainty (referring to the looming US Fed Fund Rate hike and China's slowdown) justifies the tight monetary stance.

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As Indonesia's inflation rate has eased to 6.25 percent (y/y) in October 2015 from 6.83 percent (y/y) in the previous month, and given that Indonesian inflation will ease more markedly in the last two months of 2015 as the impact of the subsidized fuel price hike in November 2014 will vanish, the central bank of Indonesia (Bank Indonesia) seems to have more scope to cut its current relatively high benchmark interest rate, hence giving rise to accelerated economic activity.

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The central bank of Indonesia announced on Thursday (17/09) that it the country’s key interest rate (BI rate) at 7.50 percent, while maintaining the deposit facility rate at 5.50 percent and the lending facility rate at 8.00 percent. According to Bank Indonesia (BI) this decision is consistent with its efforts to push inflation towards the target corridor of 4±1 percent in both 2015 and 2016. In addition, the decision is also part of Bank Indonesia’s measures to anticipate possibilities of a Fed Fund Rate (FFR) hike.

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Although Indonesian stocks managed to rebound, the rupiah continued to depreciate against the US dollar today (25/08). However, rupiah weakening was limited as Bank Indonesia was closely monitoring and intervening in markets to support the rupiah. Based on the Bloomberg Dollar Index, the Indonesian rupiah depreciated 0.03 percent to IDR 14,054 per US dollar. As significant further rupiah weakening is assumed to seriously undermine confidence in the rupiah, the central bank’s intervention efforts are well received by investors.

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During Bank Indonesia’s Board of Governors it was decided on 18th August 2015 to hold the BI Rate at 7.50 percent, while maintaining the Deposit Facility rate at 5.50 percent and the Lending Facility rate at 8.00 percent. The decision is consonant with efforts to control inflation within the target corridor of 4±1 percent in 2015 and 2016. In the short term, Bank Indonesia (BI) is focused on efforts to stabilize the rupiah amid uncertainty in the global economy, by optimizing monetary operations in the rupiah and the foreign exchange market.

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In a bid to boost economic activity in Indonesia, the central bank (Bank Indonesia) revised several regulations involving down payments for the purchase of cars and motorcycles as well as the maximum loan-to-value (LTV) ratios for first or more home purchases by Indonesian citizens. Yati Kurniati, Director of Bank Indonesia’s Macroprudential Department, said that the central bank implemented the looser monetary policy in the property and automotive sectors in an effort to boost credit growth, hence boosting the whole economy.

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Soon it will be made easier to buy property in Indonesia as the country’s central bank (Bank Indonesia) plans to ease down payment (DP) requirements for mortgages. Today (22/05), Bank Indonesia Governor Agus Martowardojo told reporters that the DP obligation for first-home buyers will be lowered from 30 percent to 20 percent of the property’s value. This relaxation should have a positive effect on the performance of Indonesia’s financial institutions and property developers as demand for loans and property is assumed to grow.

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Investors are clearly waiting for results of Bank Indonesia’s Board of Governor’s Meeting, conducted today (19/05). In this monthly policy meeting, Indonesia’s central bank will decide on its monetary approach. For most market participants it is of crucial importance to learn whether Bank Indonesia will adjust its interest rate policy in order to support the country’s economic growth (which slowed to a five-year low in the first quarter of 2015). Ahead of results, scheduled to be released this afternoon, Indonesian stocks and the rupiah weaken.

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Bank Indonesia announced today that the country’s total foreign debt rose 7.6 percent (y/y) to USD $298.1 billion in the first quarter of 2015. This figure means that the pace of the country’s foreign debt growth has slowed from the 10.2 percentage point growth (y/y) that was recorded in the preceding quarter. Both public and private sector foreign debt growth slowed as both sectors are more careful to take up loans amid a weakening rupiah while export revenues decline amid sluggish global (and domestic) economic growth.

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