Analysts expect that Indonesia's central bank (Bank Indonesia) will maintain its benchmark interest rate at 5.75 percent in tomorrow's meeting (14/05/13). This rate, a historic low rate for Indonesia, has been in force since February 2012. The central bank's deposit facility (Fasbi) is also expected to be kept at 4 percent. The position of Governor of Bank Indonesia - currently held by Darmin Nasution - will be taken over at the end of this month by Agus Martowardojo.
Last month, president Susilo Bambang Yudhyono announced that the price of subsidized fuel will be raised in June, but only after the House of Parliament will have approved a compensation program for the poor. The fuel price is raised in order to relieve pressure on the government's budget balance as it currently spends a significant portion to fuel subsidies. The higher fuel price will most likely trigger inflationary pressures, which normally are responded to by increasing the central bank's interest rate. Indonesia's headline inflation rate is already quite high at 5.57 percent (YoY) in April.
Continued delay to raise the subsidized fuel price made Standards & Poor's decide to downgrade Indonesia's debt outlook. It will take at least one year before the credit rating agency will provide the investment grade status to Indonesia. Due to S&P's downgrade many foreign investors decided to reduce their Indonesian stock portfolios last week. However, the main index was still able to post robust growth due to large purchases by domestic investors.
Indonesian media also reported that on Tuesday (14/05/13), Yudhoyono will announce Indonesia's new Finance minister after the former - Agus Martowardojo - left the position to move to Bank Indonesia. A name which is increasingly mentioned as the possible new Finance minister is Chatib Basri, head of the Indonesia Investment Coordinating Board (BKPM). In the past, Basri served as adviser to former Finance minister Sri Mulyani Indrawati, was a member on the regional advisory board of Toyota Motor Asia, and was an independent commissioner for Astra International, Semen Indonesia and Indika Energy. In October 2011, he became head of the BKPM replacing Gita Wirjawan who became minister of Trade.