Indonesia’s inflation was recorded at 0.09 percent month-on-month (mom) in October, supported by steady prices of raw foods and clothes. Year-on-year (yoy) inflation continued to remain high at 8.32 percent, although slightly lower as compared to 8.40 percent (yoy) in September and 8.79 percent (yoy) in August. Meanwhile, the year to date inflation (ytd) stood at 7.7 percent. Bank Indonesia (BI) maintained its inflation target range of between 9.0 and 9.8 percent for the year. This takes into account the typically low inflation rate in November followed by the historically high inflation rate in December due to seasonal festivities.

Trade Deficit

The country recorded another trade deficit in September (USD $657.2 million) as opposed to the small trade surplus of USD $71 million in August 2013 (a revision from the USD $0.13 billion previously). The deficit was mainly driven by demand from the oil and gas sector. Imports of raw materials (which form the largest share of imports) and capital goods were still relatively high, recording 11 percent and 13 percent mom growth respectively. While domestic demand for imports - supported by the country's robust economic growth – rose, the depreciating rupiah exchange rate have resulted in more expensive imports. On the other hand, commodities, which form the majority of exports of Indonesia, have witnessed volatility in prices, attributable to global undercurrents. The overall deficit, however, narrowed to USD $2.9 billion in the third quarter as compared to USD $3.1 billion in the previous quarter.

Current Account Deficit

The estimated current account deficit (CAD) at the end of Q3-2013 is expected to be high at USD $8 billion from the record CAD of USD $9.8 billion in Q2-2013. Indonesia’s exports by value dropped 6.7 percent (yoy) to USD $43 billion in Q3-2013, or down 5.8 percent from Q2-2013. During the same period, imports rose 1 percent (yoy) to USD $46 billion, down 5.9 percent from the previous quarter. Slowing imports suggest that companies are spending less to finance their imports and consumers are postponing purchases of increasingly expensive goods such as electronic gadgets. BI has warned that large capital outflows would remain a major concern for the country’s economy even after the US Federal Reserve (Fed) ultimately ends its monetary stimulus program. The US central bank would likely raise its interest rate to further tighten liquidity, which could lead to further shocks in the global financial market.

Economic/GDP Growth

Annual economic growth reduced to its weakest pace in past four years in the Q3-2013. The economy grew 5.62 percent (yoy) in the third quarter, which is the lowest in last 11 quarters (since Q4-2009). The GDP growth is, however, still in line with BI’s 5.5-5.9 percent target band and was also in accordance with market expectations. Exports have been weak this year, but growth has been bolstered by domestic demand, which accounts for about 50 percent of the economy, and investment. Domestic consumption, however, is slowing after some macro-prudential measurements were taken by policy makers, on top of the 33 percent average fuel price hike in June 2013.

Rupiah Exchange Rate

On 31 October 2013, the rupiah closed at 11,234 per USD as compared to 11,613 per USD on 30 September. The recovery reflects the fact that measures taken by BI to stabilize the macroeconomic environment in August and September have shown their impact.

| Source: Bank Indonesia

BI Rate

Indonesia's benchmark interest rate (BI rate) was held at 7.25 percent during the month of October seeing improvements on the trade deficit side (August figure). BI had increased the rate in August and September, chiefly, in order to counter inflation, which led to the lower inflation and a minor trade surplus in August. However, considering the latest deficit data for September and the continually depreciating rupiah currency, the probability that BI may pursue a further tightening policy remains.



As of 31 October, the WTI oil price declined further to USD $96.86 per barrel from USD $103.84 per barrel on 30 September, on account of the inventory build-up in the USA. The price on 4 November showed a further decline to USD $94.33 per barrel. This more than four weeks’ declining trend is the longest run of weekly declines for WTI since June 2012.


Coal stood at USD $84.4 per metric ton (MT) on 31 October as compared to USD $81.3 per MT at the end of September. The coal prices which had witnessed a decline for the most part of the year had begun improving after Moody’s revised the outlook to stable from negative in August. However, the pressure on coal prices has not fully worn off as the global macroeconomic environment stabilizes.


Crude Palm Oil prices have risen lately. On 31 October, the price stood at USD $809.14 per ton as compared to USD $718.36 per ton on 30 September. The key reason for the price increase is expectation that Indonesia, the world’s largest supplier, may fall short of its production target after prolonged rains disrupted harvesting and transport. The price has further increased to USD $813.37 per ton on 4 November.


The gold prices continued to remain range-bound even in October. The price stood at USD $1,335.4 per ounce on 31 October, a slight recovery from 30 September’s USD $1,309.9 per ounce. Despite late October and early November marked the festive gold-buying season in India, the largest gold importer, gold saw a slight decline to USD $1,311.7 per ounce on 4 November.

Written by Kreshna D. Armand and Pradnya Desai