Today (03/02), Statistics Indonesia (BPS) will release a number of macroeconomic data which are eagerly awaited for by market participants. Most importantly, Indonesia's January 2014 inflation rate and the December 2013 trade balance. These data will have an impact on the performance of Indonesia's rupiah exchange rate and the country's benchmark stock index (IHSG). Monthly inflation in January is expected to range between 0.8 and 1.0 percent, while a trade surplus of about USD $800 million in December is forecast.

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On Sunday (26/01), Indonesia's National Disaster Mitigation Agency (BNPB) reported that the floods in Jakarta have led to 23 casualties (due to drowning, electrocution or the impossibility for sick people to reach the hospital) in the last two weeks in Indonesia's capital city, while almost 28,000 people are still displaced from their homes. The good news, however, is that in many parts of Jakarta floodwaters have begun to subside since the end of last week although several neighborhoods remain flooded up to this day.

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Contrary to reports last week, the central bank of Indonesia (Bank Indonesia) expects that the country's January inflation rate may exceed 1 percent due to the disturbance of food products distribution amid severe floods in several cities in Indonesia, particularly Jakarta and Manado. Higher food prices are expected to add 0.3 percent to the monthly inflation rate. Apart from the flood issue, higher LPG as well as electricity tariffs (in the industry sector) will also contribute to January 2014 inflation.

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On Tuesday (21/01), the International Monetary Fund (IMF) sent a positive message to the world as it slightly raised its forecast for global economic growth in 2014. The main reason for this upward revision is the improving economy of the USA. According to the IMF, the US economy will grow 2.8 percent in 2014 (0.2 percentage points higher than the IMF's previous outlook released in October 2013). Due to stronger US growth, the global economy is now expected to expand by 3.7 percent (0.1 percent up from its previous forecast).

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Indonesia's Ministry of Finance is optimistic that the country's inflation rate can be kept at 5.5 percent in 2014 as demand and supply of goods is expected to remain stable although the depreciating rupiah exchange rate and weak state of the country's infrastructure will continue to provide inflationary pressures. Deputy Finance Minister Bambang PS Brodjonegoro expects inflation in January 2014 to be lower than in the same month last year (1.03 percent) but it remains uncertain the extent to which the current floods will impact on the inflation rate.

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Traditionally in the first month of the year, heavy rainfalls plague certain areas of Indonesia, particularly parts of Java, Kalimantan and Sumatra as the rainy season hits its peak. These weather conditions cause social problems as tens of thousands of people need to relocate as well as economic turmoil due to disrupted harvests and logistic trouble amid bad connectivity. Governor of Indonesia's central bank (Bank Indonesia), Agus Martowardojo, stated that the current weather conditions may result in higher inflationary pressures in January.

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Forecasts for economic growth in Indonesia in 2014 are still optimistic. The government of Indonesia targets a 6 percent growth rate, while the country's central bank (Bank Indonesia) expects GDP growth in the range of 5.8 to 6.2 percent. Although these forecasts clearly fall short of the target set in the country's National Medium Term Development Plan (RPJMN) - which mentions annual GDP growth of between 6.3 and 6.8 percent - the forecasts are still rather positive given the global uncertain and volatile economic context in recent years.

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The Governor of Indonesia's central bank (Bank Indonesia), Agus Martowardojo, expects that the pace of inflation in Indonesia in January 2014 is most likely to become one of the lowest January inflation rates in the last five years although it remains important that food supplies are maintained at safe levels. The higher price of LPG in Southeast Asia's largest economy is expected to contribute only slightly to January's inflation rate. Martowardojo also stated that Indonesia's macroeconomy is stable at the start of a new year.

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The performance of the Indonesia rupiah exchange rate on Friday morning (10/01) was rather stagnant against the US dollar (the latter's movement was mixed against currencies in the Asia-Pacific) although the rupiah was up 0.12 percent to IDR 12,178 per US dollar at 13:42 local Jakarta time based on the Bloomberg Dollar Index. Positive sentiments are caused by Indonesia's narrowing current account deficit (possibly less than 3 percent of GDP in Q4-2013) and rising foreign exchange reserves at end-December 2013.

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Indonesia's central bank (Bank Indonesia) kept its benchmark interest rate (known as the BI rate) at 7.50 percent in today's Board of Governor's meeting (09/01). The institution decided not to change its interest rate because it estimates that the inflation target for 2014 is not in jeopardy (4.5 percent) while Indonesia's economic growth prospects for 2014 and 2015 remain unchanged. Also the overnight lending facility as well as deposit facility rate (Fasbi) were kept at 7.50 percent and 5.75 percent respectively.

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ICRA Indonesia, an independent credit rating agency and subsidiary of ICRA Ltd. (associate of Moody's Investors Service), publishes a monthly newsletter which provides an update on the financial and economic developments in Indonesia of the last month. In the November 2013 edition, a number of important issues that are monitored include Indonesia's inflation rate, the trade balance, the current account deficit, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:

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Indonesia's Finance Minister Chatib Basri stated that the government of Indonesia is busy preparing three new policies that aim to restore financial stability as well as attract foreign direct investments. These three new policies involve the higher sales tax on imported luxury cars, a revision of Indonesia's negative investment list, and the higher income tax on imported consumption goods. These three new policies are in addition to the policy package that was introduced by the Indonesian government in August 2013.

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The inflation rate of Indonesia rose slightly in November 2013 (month-to-month) and confirms estimations that inflation in Southeast Asia's largest economy is under control after having accelerated sharply due to the introduction of higher subsidized fuel prices June 2013. In recent months, inflation moved sideways and is expected to ease considerably in the first quarter of 2014. Indonesia's consumer price index rose 0.12 percent in November due to rising electricity, processed foods and health care costs.

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The benchmark stock index of Indonesia (known as the Jakarta Composite index or IHSG) was able to continue its rise on Monday (02/12), supported by economic data released by Statistics Indonesia. Although Indonesia's November inflation rate (0.12 percent) was slightly higher than previously expected, investors were content with the result. Moreover, Indonesia's October trade balance showed a (limited) surplus of USD $42.2 million, constituting a sharp improvement from the large deficit in the previous month.

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The government of Indonesia will release two additional fiscal policy packages at the end of November or start of December that both aim to heal Indonesia's current account deficit. The two packages constitute follow ups of the policy package that was released in August 2013. Previously, deputy minister of Finance, Bambang Brodjonegoro, announced that an additional package would be released in October. However, it turned out that the government needed some more time to prepare the two additional packages.

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On Thursday 14 November 2013, Agus Martowardojo, Governor of Indonesia's central bank (Bank Indonesia), delivered his end-of-the-year speech at the Annual Bankers’ Dinner. The meeting was attended by leaders from Indonesia's House of Representatives (DPR), economic ministers, leaders of the country's banking industry and business community, non-ministerial government agencies as well as a number of international institutions, thus representing a strategic forum in terms of the national economy.

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Indonesia's benchmark stock index (IHSG) was not able to continue its rebound. On Friday (15/11), the IHSG fell 0.73 percent to 4,335.45 points amid widespread profit taking. Foreign investors recorded net selling of IDR 193 billion (USD $16.9 million) on today's trading day. Moreover, investors are concerned about the impact of the higher interest rate of the central bank (7.50 percent), particularly on the property and banking sectors in the fourth quarter of 2013.

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Despite rising concerns about the slowing pace of the Indonesian economy, the deputy minister of Finance Bambang Brodjonegoro reminded investors that Indonesia's economic growth in the third quarter of 2013 still constitutes one of the highest growth rates around the globe. Economic expansion in Q3-2013 slid to 5.6% in Southeast Asia's largest economy. With the exception of China (7.8% GDP growth in Q3-2013), Indonesia's growth continues to outpace growth in other emerging markets, such as Brazil (3.3%) and Turkey (4%).

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Five more new public listings are expected on the Indonesia Stock Exchange (IDX) in the remainder of 2013 despite the current less rosy macroeconomic environment in Indonesia. The companies that are expected to conduct their initial public offering (IPO) are Indomobil Multi Jasa, Dwi Aneka Jaya Kemasindo, Blue Bird, Soechi Lines, and Sawit Sumbermas Sarana. So far this year, 26 Indonesian companies went public on the IDX. At the start of the year, the IDX targeted for at least 30 new listings in 2013.

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Indonesia's Jakarta Composite Index (IHSG) started Tuesday's trading day (12/11) slightly in the red. However, after the central bank of Indonesia (Bank Indonesia) announced to have raised its benchmark interest rate (BI rate) by 25 bps to 7.50 percent, the IHSG quickly plunged. The interest rate hike is considered as a sign that Bank Indonesia is still concerned about the nation's macroeconomy, particularly Indonesia high inflation (8.32 percent yoy in October 2013). The index fell 1.38 percent to 4,380.64 points.

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