Global credit rating agency Standard & Poor’s remains the only credit rating agency among the big three to maintain its BB+/stable rating on Indonesia’s sovereign credit (which is one notch below investment grade). Both Fitch Ratings (BBB-/stable) and Moody’s Investor Service (Baa3/stable) had already brought Indonesia back to investment grade in 2011 and 2012. Standard & Poor’s has been reluctant to raise Indonesia’s status as it wants to see more results from the country’s economic policy reforms.

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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.

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Despite strong American and European indices (which impacted positively on most Asian stock indices), Indonesia's main stock index (IHSG) continued its two-day weakening trend. Standard & Poor's decision to downgrade Indonesia's BB+ credit rating outlook from positive to stable was a major reason for foreign investors to start selling their Indonesian assets. At the end of Friday's trading day (03/05/13), the index stood at 4,925.48, an 1.37 percent fall.

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International financial services company Standard & Poor's (S&P) downgraded its outlook on Indonesia’s BB+ rating from positive to stable as the agency assessed that Indonesia's reform momentum is fading and the external profile is weakening. The decision came as a surprise as Indonesia's government had just declared to reduce its massive spending on fuel subsidies starting from next month. These subsidies were the main reason why S&P had not upgraded Indonesia's credit rating to investment grade yet.

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The Indonesia Stock Index (IHSG) fell victim to large profit taking on Thursday's trading day (02/05/13) after having set a new record yesterday. Market players are probably concerned about the 'May Cycle' which refers to the traditional fall of the IHSG in the month of May. But negative market sentiments were particularly brought on by Standard & Poor’s revised outlook on Indonesia’s BB+ rating from positive to stable. It triggered a 1.32 percent correction in Indonesia's stock index.

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One piece of evidence of international confidence in the Indonesian economy is the steady upgrades in the country's credit ratings by international financial services companies such as Standard & Poor's, Fitch Ratings and Moody's. In late 2011, Fitch Ratings was the first to reinstate Indonesia's investment grade status after a 14-year hiatus. In January 2012, Moody’s followed suit citing the country’s resilient economy. S&P may follow soon, depending on the fuel price hike issue.

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