Although it was clear that Indonesia would see a high inflation rate in July 2013 as the impact of higher fuel prices would kick in, Indonesia's central bank (Bank Indonesia) was surprised to see the figure go up to 3.29 percent. Currently, Indonesia's annual inflation rate stands at 8.61 percent. Bank Indonesia's governor Agus Martowardojo said that this rate is far outside the central bank's target range and announced that the institution expects annual inflation to stay above 8%  throughout 2013, higher than its previous assumption of 7.8% at end-2013.

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Today (02/08), Indonesia's bureau for statistics announced that economic growth of Indonesia in the second quarter of 2013 reached 5.81 percent (YoY), which is the lowest growth rate since Q3-2010 and also lower than most analysts as well as the Indonesian government expected. The GDP figure reflects Indonesia's cooling economy. For the fourth consecutive quarter, the rate has weakened as the country has been under pressure: high inflation, a widening trade deficit and a weakening rupiah.

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The Indonesian government assumes that the recently increased prices of subsidized fuels will translate into lower oil imports from the third quarter of 2013. Lower oil imports will result in lower demand for foreign currencies and, as such, will support Indonesia's currency, the rupiah. The value of the IDR rupiah is also influenced by market participants' expectation of inflation. Indonesia's central bank (Bank Indonesia) projects inflation to rise to 2.77 percent in July, and to slow down to 1 percent in both August and September.

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According to Finance minister Chatib Basri, the Indonesian government expects the country's gross domestic product (GDP) to have grown by 6.1 percent in the first six months of 2013. This forecast falls short of the government's 6.3 percent GDP growth assumption in the state budget (APBN). Basri stated that the lower outcome is due to global factors, such as slowing economic growth in China and India. But the government's assumption is more optimistic than the forecast of the central bank, which expects growth between 5.1 and 5.9 percent.

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Despite a higher benchmark interest rate, higher inflation, a weakening rupiah, and global economic turmoil, four out of seven Indonesian banks that released their financial results over the first half of 2013, have posted double-digit growth. The seven banks show a combined growth of 16.2 percent. Although it is an impressive figure, it is a couple of percentage points lower than last year's performance. Indonesia's economy has slowed down to an annual economic growth of six percent and this has impacted on domestic demand for credit loans.

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Although Indonesia's currency, the IDR rupiah, has continued its weakening trend, Indonesian authorities are reassuring the people that this development is not as much caused by domestic factors but rather due to the rising US dollar against other currencies. According to data from Bank Indonesia, the Indonesian rupiah has weakened 5.99 percent to the US dollar in 2013. It is also clear that the central bank of Indonesia has decided to let the rupiah depreciate gradually instead of using its foreign exchange reserves to support the currency.

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According to various analysts and the central bank of Indonesia, the weakening of the IDR rupiah should not be too alarming as there currently is a global trend in which currencies, worldwide, weaken against the US Dollar. This situation is triggered by the economic recovery that has been experienced by the world's largest economy recently. Compared to other ASEAN members, the rupiah's decline is normal. The central bank adds that foreign capital inflows will return and will strengthen the country's currency.

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The central bank of Indonesia (Bank Indonesia) expects inflation to moderate to 4.5 percent in 2014 if the country's current account balance can be turned into a surplus. Currently, Indonesia's trade balance shows a deficit as global demand for Indonesia's commodities has reduced due to international economic turmoil, while Indonesia continues to import large quantities of oil. If the deficit can be reversed into a surplus it will curtail inflation and automatically have a positive impact on Indonesia's currency (IDR rupiah).

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After a long plenary session on Monday (17/06), Indonesia's House of Representatives (DPR) and the government have agreed to the revised 2013 State Budget (APBN-P). The revision was needed as original macroeconomic assumptions began to fall out of tune with reality. Due to global and domestic conditions a number of assumptions needed to revised down. Most controversial decision that was taken is the increase in price of subsidized fuel by 44 percent to IDR 6,500 (USD $0.66) per liter.

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The central bank of Indonesia (Bank Indonesia) decided today to raise its benchmark interest rate by 25 basis points to 6.0 percent. The decision was made amid concerns about the inflationary impact of a hike in subsidized fuel prices (planned this June) as well as increasing uncertainty in global financial markets as central banks' may scale back stimulus programs. The Indonesian rupiah has weakened considerably in 2013 and forms the worst performer in Asia after the Japanese yen among the 11 most-traded currencies tracked by Bloomberg.

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Current Finance minister Agus Martowardojo is approved by Indonesia's Parliament (DPR) to replace Darmin Nasution as governor of Indonesia's central bank (Bank Indonesia) in May 2013. Martowardojo, who has been active in banking for over two decades and had a successful term as head of state-controlled Bank Mandiri, was finance minister since May 2010 after taking over from Sri Mulyani, who was pressured out of Indonesian politics.

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Not only the upward movement of most Asian stock markets, but also a number of positive company reports (regarding corporate performances of 2012) supported the Indonesia Stock Exchange (IHSG) to reach a new record-high level of 4,928.10 on Wednesday, implying an 1.77% increase compared to the previous trading day. Moreover, American and European stock markets had ended higher on Tuesday due to positive data, thus discarding turmoil related to Cyprus.

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After speculation began to spread that an agreement would be reached between Cyprus and Troika (made up of the European Union, the European Central Bank and the IMF), Asian stock markets went up, including the Indonesia Stock Exchange (IHSG). Despite foreigners' appetite for selling Indonesian assets, the index rose as it was lifted by domestic market participants' appetite for purchasing those stocks that experienced a fall on the previous trading day.

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The rise of the Indonesia Stock Exchange (IHSG) at the start of today's session was not sustained. It disappointed market participants who were hoping that Indonesia's main index would continue its upward movement supported by strengthening American and European stock indices after it became known that Cyprus will stay in the Euro-zone and the Federal Reserve will continue its bond-buying program.

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We had hoped for a continuation of the Indonesia Stock Exchange (IHSG)'s rebound after forming a green candle. It failed, however, due to negative market sentiments brought on by the bailout of Cyprus. Also, selling pressures on American stock markets late last week blocked a potential longer rally. The IHSG felt the impact of the Dow Jones Industrial Average (DJIA) that fell after a weaker NY Empire State Manufacturing Index as well as Consumer Sentiment.

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The Indonesia Stock Exchange (IHSG) rebounded after receiving support from positive American stock markets due to a fall in US jobless claims. American stock markets also influenced most other Asian stock markets in a positive way. Despite the fact that most foreign investors engaged in profit taking by selling Indonesian assets, the IHSG managed to gain 0.69 percent to the level of 4,819.32. Trade volume decreased, while total value of transactions rose.

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On Thursday's trading day, the Indonesia Stock Exchange (IHSG) was tame and weakened again. Foreign market participants were mostly selling their Indonesian assets and influenced domestic investors to behave similarly. Most other Asian stock markets, however, turned positive and were followed by good European openings. It did not prevent the IHSG from losing 49.07 points, or 1.01 percent to 4,786.37. Trade volume increased, while total value of transactions decreased.

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Apparently, market participants were eagerly waiting for positive news regarding stimulus packages that various central banks will apply to boost local economies. Once the news spread, investors hunted for stocks that previously weakened. Moreover, increased manufacturing data from the USA and Europe contributed to positive market sentiments. Lastly, China indicated to maintain its economic pace of 7.5 percent GDP growth this year.

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After continuously reaching new record-high levels last week, the Indonesia Stock Exchange (IHSG) finally had to give up some of its gain and closed 1.04 percent lower. Declining Asian stock markets (excluding Japan's main index) and fears that the IHSG had already reached a (too) high level impacted on today's result. Market participants, who recently confirmed good corporate annual results of many companies by buying, now engaged in profit taking.

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Today, the Indonesia Stock Exchange (IHSG) reached yet another new record high as most market participants used the current positive market sentiments to maintain their stock portfolios, although part of the investors also took the chance to engage in profit taking. Most Asian stock markets gained significantly which was followed by positive openings of European stock indices. Both developments impacted heavily on the IHSG.

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