On 27 September 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 subjects such as Bank Indonesia’s new policy package, GDP growth, geothermal development, a stocks & rupiah update, September inflation, and much more.

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The central bank of Indonesia (Bank Indonesia) estimates that inflation will ease below seven percent year-on-year (y/y) in September 2015 on the back of lower prices of raw foods and lower administered prices (including fuel and electricity) in the post the Ramadan and Idul Fitri period. Bank Indonesia Governor Agus Martowardojo said the central bank expects inflation at around 6.95 percent (y/y) in September.

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In line with expectation, the central bank of Indonesia (Bank Indonesia) decided to keep its key interest rate (BI rate) at 7.50 percent for a seven consecutive month in September’s Board of Governor’s meeting (17/09) as it aims to stabilize the rupiah amid global volatility caused by looming higher US interest rates and China’s hard landing (as well as yuan depreciation), while combating inflation which stood at 7.18 percent (y/y) in August. The overnight deposit facility rate and lending facility rate were left unchanged at 5.5 percent and 8 percent, respectively.

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With all eyes on the two-day policy meeting of the Federal Reserve, we could almost forget that the central bank of Indonesia (Bank Indonesia) will also hold its monthly policy meeting today. Similar to the topic discussed in the Federal Open Market Committee (FOMC) meeting (16-17 September), Bank Indonesia may consider raising its key interest rate (BI rate) as a Fed Fund Rate hike would trigger capital outflows, while Indonesia’s inflation rate remains high and the rupiah is fragile.

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For the second time, the central bank of Indonesia (Bank Indonesia) cut its 2016 forecast for economic growth in Indonesia, Southeast Asia’s largest economy. Due to persistent low commodity prices and weak export figures, the central bank now estimates that Indonesia’s economy will grow in the range of 5.2 - 5.6 percent (y/y) next year, down from its earlier outlook of 5.3 - 5.7 percent and the initial outlook of 5.4 - 5.8 percent.

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Despite the hosting of the Gaikindo Indonesia International Auto Show 2015 (20-30 August 2015), Indonesian car sales continued to shrank in August due to people’s weaker purchasing power amid the country’s economic slowdown. In August a total of 90,077 cars were sold in Southeast Asia’s largest economy, down 6.9 percent from the same month last year, according to the latest data from the Indonesian Automotive Industry Association (Gaikindo).

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Mirah Sumirat, Chairman of the Indonesian Association of Trade Unions (Asosiasi Serikat Pekerja, abbreviated ASPEK), stated that the tens of thousands of Indonesian workers who participate in the demonstration, organized in Central Jakarta on Tuesday (01/09), are not seeking anarchy or a coup but simply request that the government will make more efforts to protect the interests of the people (as stipulated by the 1945 Constitution; article 27, paragraph 2).

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Tomorrow (Tuesday 01 September 2015) around 50,000 Indonesian workers are expected to demonstrate on the streets of Central Jakarta and demand for higher wages. This mass protest is a response to the many layoffs that occurred in Indonesia’s labor-intensive industries in recent months (while more layoffs are expected in the period ahead) as well as a response to people’s weakening purchasing power (curtailed by prolonged high inflation).

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Most analysts expect that Indonesian inflation will accelerate to around 7.43 percent (year-on-year) in August 2015 primarily due to imported inflation. As the Indonesian rupiah has been depreciating against the US dollar over the past couple of weeks while the central government recently raised import duties for a wide range of consumer products, inflationary pressures are estimated to rise.

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Through capital injections the Indonesian government aims to enhance the role of various state-owned enterprises (SOEs) within the process of economic development. In the recently unveiled 2016 State Budget draft, which still requires approval from Indonesia’s House of Representatives, the government allocated a total of IDR 48.2 trillion (approx. USD $3.6 billion) to 24 SOEs in five priority sectors: food security, infrastructure & maritime development, energy security, strategic industry development, and national economic autonomy.

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In the past days, Indonesia’s fuel subsidy policy has been in the spotlight of Indonesian media continuously. When it was reported that incumbent President Susilo Bambang Yudhoyono (SBY) and newly elected president Joko Widodo would meet on the island of Bali this week to discuss various transitional matters, speculation emerged that the country’s generous fuel subsidies, which seriously burden the government’s budget as well as current account, might be wound down before the new government is inaugurated in October 2014.

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The central bank of Indonesia (Bank Indonesia) announced two important matters on Thursday (14/08). Firstly, the institution decided to maintain the benchmark interest rate (BI rate) at 7.50 percent, the overnight deposit facility rate (Fasbi) at 5.75 percent, and the lending facility rate at 7.50 percent. Secondly, it announced that Indonesia’s current account deficit widened to USD $9.1 billion, or, 4.27 percent of the country's gross domestic product (GDP) in the second quarter of 2014, a widening that is larger than initially forecast.

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Indonesia’s gross domestic product (GDP) growth in the first half of 2014 reached 5.17 percent (year-on-year), thus continuing the slowing growth trend that has been recorded by the country since 2011. Forecasts for GDP growth in the second half of 2014 indicate a slight improvement (to the range of 5.2 to 5.3 percent year-on-year) supported by strong household consumption, increased government spending and further growth of the trade and services sector. However, in recent quarters the official GDP figure has been lower than most forecasts.

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According to Statistics Indonesia (BPS), the country’s trade balance in June 2014 recorded a deficit of USD $0.30 billion after the USD $0.05 billion surplus in the previous month. The performance of Indonesia’s trade balance was influenced by shrinkage of the country’s non-oil & gas surplus amid a lower oil & gas deficit compared to May 2014. Meanwhile, inflation was up 0.93 percent (month-to-month) in July 2014; a good performance amid the Ramadan and Idul Fitri festivities. Annual inflation eased to 4.53 percent (year-on-year).

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One day ahead of the official result of the Indonesian presidential election, the benchmark stock index of Indonesia (known as Jakarta Composite Index or IHSG) showed a good performance as market participants seem to speculate not only on a Joko Widodo win, but also on a peaceful and orderly course of events (no large scale demonstrations or riots). On Sunday, president Yudhoyono received both presidential candidates at the State Palace for dinner. This may have helped to cool some of the tension between supporters of both sides.

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Bank Indonesia Governor Agus Martowardojo expects the country’s July 2014 inflation pace to come in the range of 0.80 to 1.20 percent (month-to-month). This relatively high inflation figure is caused by seasonal factors: the holy fasting month of Ramadan and Idul Fitri celebrations. Ahead and during these festivities, consumers tend to spend more, thus resulting in higher prices in the context of these Islamic celebrations. A recent Bank Indonesia survey showed that inflation already reached 0.80 percent in the first week of July.

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ICRA Indonesia, an independent credit rating agency and subsidiary of ICRA Ltd. (associate of Moody's Investors Service), publishes a monthly newsletter which provides an update on the financial and economic developments in Indonesia of the last month. In the June 2014 edition, a number of important topics that are monitored include Indonesia's inflation rate, the trade balance, the BI rate, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:

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Emerging currencies in Asia, led by the Indonesian rupiah exchange rate, strengthened in the past week on positive economic data from the US and China, the world’s two largest economies. Companies in the US added more jobs than expected in June 2014, while manufacturing in China grew at its fastest pace in 2014. Improving economies of the US and China are important for Asian countries as it boosts Asian exports. Moreover, Indonesian inflation and trade data contributed to positive market sentiments.

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Inflation in June 2014 increased by 0.43 percent (month-to-month, mtm) in accordance with the traditional pattern ahead of the holy fasting month of Ramadan and Idul Fitri celebrations. These occasions always trigger inflationary pressures as consumers increase spending. However, June inflation remains under control and is even lower than the historical average in June in recent years (0.56 percent mtm). On a year-on-year (yoy) basis, inflation stood at 6.70 percent, thus continuing the downward trend since the beginning of 2014.

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Head of Statistics Indonesia (BPS) Suryamin announced on Tuesday (01/07) that the number of poor people in Indonesia declined slightly to 28.28 million people (or 11.25 percent of the total population) in March 2014, from 28.60 million (11.46 percent of the total population) in September 2013. However, compared to March last year, poverty has increased by 110,000 people due to high inflation and a slowing economy; economic growth slowed to 5.78 percent in 2013 and this decline continued to 5.21 percent in the first quarter of 2014.

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