On 9 August 2015, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve economic subjects such as an analysis of the recent performance of the rupiah, an analysis of Q2-2015 GDP growth, updates on inflation as well as manufacturing, and unemployment in Indonesia.

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As Indonesia’s economic growth continued to slow in the second quarter of 2015, the Indonesian Employers Association (Apindo) warned of increasing unemployment in Southeast Asia’s largest economy. Each 1 percent gross domestic product (GDP) growth can generate between 200,000 and 300,000 new jobs in Indonesia. As such, when economic growth slows, society misses out on new jobs and with around two million Indonesians entering the labor force each year, job generation is an important task of the government.

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Inflation in Indonesia accelerated more than expected in July 2015. Based on the latest data from Statistics Indonesia (BPS), Indonesian inflation rose 0.93 percent (m/m) in July, primarily due to higher food and transportation costs caused by the Ramadan month and Idul Fitri celebrations. During this month, the people traditionally increase consumer spending (triggering higher food prices) and millions of people travel back to their places of origin for the Idul Fitri festivities (triggering higher transportation costs).

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The pace of economic growth of Indonesia is expected to remain below five percent year-on-year (y/y) in the second quarter of 2015 according to Reuters poll involving 22 analysts. In fact, the poll shows that further slowing economic growth is expected. In the first quarter of 2015, Indonesia’s economic growth came at 4.71 percent (y/y), the weakest growth pace in six years. According to the poll, analysts see a gross domestic product (GDP) growth rate of 4.61 percent (y/y) in the second quarter of 2015.

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The central bank of Indonesia (Bank Indonesia) expects to see Indonesian inflation in July in the range of 0.46 - 0.60 percent month-on-month (m/m). Inflation in Indonesia always peaks during the months June, July and August due to increased consumer spending in the context of Ramadan and Idul Fitri celebrations as well as the start of the new school season. Earlier this month, Governor Agus Martowadojo said to expect annual inflation to dip below 7 percent in July, from 7.26 percent (y/y) in June.

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As expected Indonesia's central bank (Bank Indonesia) refrained from adjusting its interest rate regime at Tuesday’s Board of Governor’s meeting (14/07). The key BI rate was kept at 7.50 percent, while the overnight deposit rate (Fasbi) and lending facility rate were left at 5.50 percent and 8.00 percent, respectively. Bank Indonesia believes that the current interest rate environment is in line with its efforts to bring down inflation while supporting Indonesia’s ailing rupiah ahead of expected further monetary tightening in the USA later this year.

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Most analysts agree that the central bank of Indonesia (Bank Indonesia) will leave its interest rate regime unchanged at the Board of Governors’ Meeting that is scheduled for Tuesday 14 July 2015. Indonesia’s central bank is expected to maintain its key interest rate (BI rate) at 7.50 percent, the overnight deposit facility rate (Fasbi) at 5.50 percent, and the lending facility rate at 8.00 percent as the country’s inflation rate has recently accelerated while the rupiah has been under pressure due to external factors.

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In line with expectation and the historic trend, Indonesia’s car sales rose - on a monthly basis - in June 2015 ahead of the Idul Fitri celebrations (that mark the end of the Islamic holy fasting month). Car sales in Indonesia usually increase ahead of Idul Fitri (also known as Lebaran), a tradition which involves the exodus of millions of Indonesians from the cities to their places of origin. Before the journey to the villages a portion of these travelers are eager to buy a new car, a decision often influenced by promotional campaigns and discount programs.

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The Indonesian government revised its 2015 economic growth target. Sofyan Djalil, Indonesian Coordinating Minister for Economic Affairs, stated on Friday (03/07) that the government’s previous target was unrealistically high at 5.8 percent (y/y) given the sluggish international and domestic economic context. The government revised down the GDP growth target of 2015 to 5.2 percent (y/y). Djalil said that the global economy is forecast to grow 2.9 percent (y/y) in 2015 from an earlier estimate of 3.5 percent (y/y).

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The latest survey of Bank Indonesia shows that consumer confidence in Indonesia has fallen in June 2015 on fears of shrinking job availability as well as declining income and business activity. Last month, the central bank’s Consumer Confidence Index fell 1.5 points to 111.3. This year so far, Indonesian consumer confidence only rose in May. In other months the index fell. Bank Indonesia’s Consumer Confidence Index is based on samples of 4,600 households in 18 major cities in Indonesia (100 separates optimism from pessimism).

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Today (22/10), the World Bank released the October 2015 edition of its flagship Indonesia Economic Quarterly, titled "In Times of Global Volatility". In the report the World Bank states that despite current ongoing global uncertainties (caused by looming monetary tightening in the USA and China's economic slowdown), which make macroeconomic management difficult in the year ahead, pro-active government action could offset the negative impact and may help to boost growth.

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Indonesia's heavily depreciated rupiah makes it more difficult for Indonesians to study abroad or to send their children to universities abroad without having the financial aid in the form of a scholarship. For those that are thinking of making such a decision, they need to take into account the performance of the Indonesian rupiah as well as the inflation outlook in the country of destination. So far in 2015, the Indonesian rupiah has depreciated 18 percent against the US dollar, 9 percent against the euro, 14 percent against China's yuan, and 2.4 percent against the Australian dollar.

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The central bank of Indonesia announced on Thursday (17/09) that it the country’s key interest rate (BI rate) at 7.50 percent, while maintaining the deposit facility rate at 5.50 percent and the lending facility rate at 8.00 percent. According to Bank Indonesia (BI) this decision is consistent with its efforts to push inflation towards the target corridor of 4±1 percent in both 2015 and 2016. In addition, the decision is also part of Bank Indonesia’s measures to anticipate possibilities of a Fed Fund Rate (FFR) hike.

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The number of poor people in Indonesia rose. According to the latest data from Statistics Indonesia (BPS), released today (15/09), there were 28.59 million poor people in Indonesia in March 2015, equivalent to 11.22 percent of the total Indonesian population. In September 2014 Indonesia’s poverty rate stood at 10.96 percent of the Indonesian population, or 27.73 million people. Thus within a time-span of six months, the number of poor Indonesians rose by around 860,000 people. BPS releases data on the country’s poverty level twice per year covering the months March and September.

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Statistics Indonesia (BPS) announced today (01/09) that Indonesian inflation has eased slightly to 7.18 percent (y/y) in August 2015, from 7.26 percent (y/y) in the preceding month. On a month-on-month basis, inflation climbed 0.39 percent in August, below analysts’ expectations. Meanwhile, Indonesia’s manufacturing sector continued to contract in August, albeit conditions improved from the preceding month.

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During Bank Indonesia’s Board of Governors it was decided on 18th August 2015 to hold the BI Rate at 7.50 percent, while maintaining the Deposit Facility rate at 5.50 percent and the Lending Facility rate at 8.00 percent. The decision is consonant with efforts to control inflation within the target corridor of 4±1 percent in 2015 and 2016. In the short term, Bank Indonesia (BI) is focused on efforts to stabilize the rupiah amid uncertainty in the global economy, by optimizing monetary operations in the rupiah and the foreign exchange market.

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The central bank of Indonesia (Bank Indonesia) predicts mounting inflationary pressures in the months June and July due to the Ramadan and Idul Fitri festivities, the possible impact of the El Nino weather phenomenon, and the new school year. Bank Indonesia expects to see inflation at 0.66 percent month-to-month (m/m) in June 2015, particularly driven by volatile food prices (a normal phenomenon ahead of Idul Fitri). On a year-on-year (y/y) basis, Indonesian inflation is expected to accelerate to 7.40 percent, from 7.15 percent in May.

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Most stock markets and currencies in Southeast Asia weakened on Friday (29/05), including Indonesia’s benchmark Jakarta Composite Index and the rupiah. The Jakarta Composite Index fell 0.40 percent to 5,216.38 points, while the rupiah depreciated 0.01 percent to IDR 13,224 per US dollar according to the Bloomberg Dollar Index. Over the past week, Indonesian stocks and the rupiah weakened primarily due to the Greek debt crisis, looming higher US interest rates and the lack of positive domestic factors.

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Investors are clearly waiting for results of Bank Indonesia’s Board of Governor’s Meeting, conducted today (19/05). In this monthly policy meeting, Indonesia’s central bank will decide on its monetary approach. For most market participants it is of crucial importance to learn whether Bank Indonesia will adjust its interest rate policy in order to support the country’s economic growth (which slowed to a five-year low in the first quarter of 2015). Ahead of results, scheduled to be released this afternoon, Indonesian stocks and the rupiah weaken.

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Statistics Indonesia (BPS) announced on Monday morning (04/05) that Indonesia’s inflation accelerated to 6.79 percent year-on-year (y/y) in April 2015. On a month-to-month basis, Indonesian inflation was recorded at 0.36 percent in April. Although this result is in line with analysts’ previous projections, April inflation realization is in sharp contrast with the ‘usual’ inflation pace in the fourth month of the year. Usually, Indonesia records slight deflation in April as prices ease amid the peak of the harvest season.

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