Market participants are concerned to see Indonesia’s inflation accelerating beyond expectation. On Monday (01/06), Statistics Indonesia (BPS) announced that the country’s consumer price index rose to 7.15 percent (y/y) in May, from 6.79 percent (y/y) in the preceding month, primarily on higher transportation and food prices. This higher-than-expected May inflation figure is particularly sensitive as Indonesia is about to enter the traditional peak inflation period in June-august when consumer spending increases due to Ramadan (Islamic holy fasting month) and Idul Fitri celebrations as well as the start of the new school season. As low-octane gasoline is basically not subsidized anymore by the Indonesian government (since January 2015), recovering global petroleum prices cause additional inflationary pressure.

Accelerated inflation also implies that Indonesia’s central bank (Bank Indonesia) will not cut its benchmark interest rate (BI rate) anytime soon. Business players and the government have requested Bank Indonesia to cut its BI rate, which currently stands at 7.50 percent, as this relatively high interest rate environment has been one of the reasons why Indonesia’s economic growth has slowed down in recent years. Bank Indonesia clearly favours financial stability over accelerated economic growth.

Jakarta Composite Index (IHSG):

The Greek debt crisis remains a main cause for concern. Although some optimism was detected in markets, giving rise to an appreciating euro currency, after Greek Prime Minister Alexis Tsipras said that his government had submitted proposed terms for a deal to its European creditors and the International Monetary Fund (IMF), it would not be the first time that Greece’s proposed reforms are considered too little to please its creditors. Greece needs to make a €300 million (roughly USD $328 million) debt repayment to the IMF on Friday (05/06).

Meanwhile, the rupiah appreciated because the US dollar weakened over the past days as inflation in the Eurozone was better than expected in May (0.3 percent y/y) and oil prices closed higher on Tuesday (02/06). Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.25 percent to IDR 13,196 per US dollar on Tuesday (03/06).

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

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