To ease pressures on the IDR rupiah, Indonesia's central bank has used about USD $2.0 billion of its foreign exchange reserves to support the currency as the country's continuing trade deficit as well as concerns about the possible increase in price of subsidized fuel in June has caused much uncertainty about the level of inflation in the near future and puts downward pressure on the rupiah. Indonesia's foreign exchange reserves fell to USD $105.2 billion in late May 2013 from USD $107.3 billion at the end of April.

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Yesterday (07/06), the main index of the Indonesia Stock Exchange (IHSG) fell by a total of 2.7 percent to close at 4,865.32 points. The size of this single day fall of Indonesia's IHSG has not been seen since November 2011 and illustrates waning confidence in Indonesia's economy. For eleven days in a row, foreign investors have been engaged in net selling as they have been concerned about ongoing uncertainty regarding the price hike of subsidized fuel, the continuing trade deficit as well as the steady fall of the IDR rupiah.

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Indonesia's minister of Economy, Ir. M. Hatta Rajasa, stated that the government of Indonesia intends to realize economic growth of at least 6.2 percent in the second quarter of 2013 in order to remain on track for 6.3 percent growth for full year 2013. Although he reminded that it will take hard effort to realize this target, his message contained more optimism than Finance minister Chatib Basri's statement earlier this week who sees 6.0 percent of economic growth as the limit in Q2-2013.

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Indonesia's central bank (Bank Indonesia) expects the Indonesian economy to grow between 6.3 and 6.8 percent in 2013, supported by strong domestic consumption and foreign investment, with inflation rising by about 4.5 percent. Indonesian exports are expected to increase due to better global demand for Indonesia's commodities such as coal and palm oil, with commodity prices rising accordingly. But some problems in Indonesia's financial system remain to be solved.

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Bank Indonesia, the country's central bank, continued its key interest rate at the level of 5.75 percent. The interest rate has been at this historic low level for the 12th month in a row. The current policy rate is "considered consistent with the contained inflationary pressure in accordance with its target range of 4.5 percent ± 1 percent in 2013 and 2014," according to the website of Indonesia's central bank.

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Bank Indonesia's foreign exchange reserves have fallen by US $4 billion to US $108.8 in January from US $112.8 in December 2012. The current reserves translate to six months of imports and short-term government debt payments. Reasons behind the four percent decline are massive spending by Indonesia's Central Bank to support the weakening IDR rupiah in combination with overseas debt payments.

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Despite mixed Asian stock indices because of negative news from China and Japan, certainty about the increase in the price of Indonesia’s subsidized fuel after the plenary meeting of the House of Representatives (DPR) on Monday (17/06) formed a pillar of support for Indonesia’s main stock index (IHSG) on Tuesday’s trading day (18/06). Investors took the opportunity to buy stocks, particularly Indonesia’s big cap stocks, after these had experienced significant falls last week due to profit taking actions amid an uncertain market.

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Despite weakening stock indices in the United States on Friday (14/06), most Asian indices were up on Monday (17/06) and impacted positively on the main index of Indonesia (IHSG). On the other hand, market participants are still waiting for the outcome of the plenary session of Indonesia's House of Representatives (DPR) regarding the approval of the increase in the price of subsidized fuel. The market is speculating that the price increase will be approved even though a number of political parties oppose the plan.

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On Thursday (13/06), Indonesia's main stock index (IHSG) could not continue the recovery it had shown on the previous day. The index fell 1.92% to 4,607.66 points amid international and domestic concerns. Investors are worried about central banks' policies and the World Bank's downgrade of global economic growth in 2013. On the domestic side, negative sentiments were brought on by the fuel subsidy issue (and its inflationary impact), the weakening rupiah, the BI rate hike, falling foreign exchange reserves, and the trade deficit.

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Less than 24 hours after having raised the overnight deposit facility rate (known as Fasbi) by 25 bps to 4.25 percent, Indonesia's central bank (Bank Indonesia) also raised its benchmark interest rate (known as the BI rate) by 25 bps to 6.0 percent. Both these policy responses were conducted in order to support the IDR rupiah, which is one of the worst performing Asian currencies against the US dollar in 2013. Indonesia's central bank expects growing inflationary pressures as the Indonesian government intends to cut fuel subsidies this June.

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Despite continued foreign selling of Indonesian stocks on today's trading day (12/06), we see that there is an end in sight to the sell of. During the last three days, Indonesia's main index (IHSG) had fallen considerably. The fall was led by the big cap companies that generally are target of most foreign investment. As stock prices of these companies had experienced a free fall in previous days, it made them attractive for limited buying. However, negative sentiments that have coloured the stock market recently, have not waned yet.

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For three consecutive days, Indonesia's main stock index (IHSG) had to cope with significant losses. On Tuesday (11/06), the index fell 3.50 percent to 4,609.95 points, considerably below its record high level of 5,214 on 20 May 2013. Foreign investors recorded a net sell of IDR 3.98 trillion (USD $406.1 million) as domestic conditions in Indonesia are unstable. Moreover, investors are concerned about governments (USA and Japan) that want to slow down their stimulus programs as various economic data are showing positive outcomes.

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Negative market sentiments, especially originating from within Indonesia, made investors shy away from Indonesia's main stock index (IHSG) on Monday (10/06). Similar to last Friday, when the index fell 2.70 percent, foreign investors continued to sell large proportions of their Indonesian stock portfolios. The index lost 1.81 percent today as investors are concerned about the current state of Indonesia's economy. Other major indices of Asia were mixed but with a strengthening tendency, despite weak data from China.

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Indonesia's main stock index (IHSG) was mixed on Tuesday's trading day (04/06) as negative market sentiments were still felt after yesterday's tumble (inflicted by Indonesia's April trade deficit). Foreigners continued to sell parts of their Indonesian stock portfolios causing the index to fall below the psychological boundary of 5,000 points, which also meant that it went into oversold territory. But the rise of the Yen, thus supporting Asian indices, in combination with positive openings in Europe made the IHSG rise in the end.

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Asian stock markets were mixed on Thursday (30/05). Particularly Hong Kong's Hang Seng Index (HSI) was negatively influenced by Wednesday's falling stock indices in Europe and the USA. In this context, Indonesia's main index (IHSG) was hit as well and fell 1.37 percent to 5,129.65 points. Moreover, the continuing decline of the IDR rupiah makes market participants less enthusiastic to purchase Indonesian stocks. Foreigners were also anxious to sell part of their stock portfolios.

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The upward movement of American and European stock indices on Tuesday (28/05) made a good impact on Indonesia's main index (IHSG) on Wednesday (29/05). Despite Asian markets being mixed and the Hang Seng Index (usually the reference point for Asian indices) falling, the IHSG succeeded in surpassing the next psychological boundary at 5,200 points. Overall, foreign investors recorded a net sell but it was offset by a net buy in a number of big caps: Perusahaan Gas Negara, Jasa Marga, Indo Tambangraya Megah and United Tractors.

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