In line with estimates, Indonesia posted 0.08 percent (m/m) deflation in October 2015. Deflation was primarily caused by lower food prices in Southeast Asia's largest economy. Annual inflation eased to 6.25 percent (y/y) and is expected to ease more markedly in the last two months of the year as the impact of last year November's subsidized fuel price hike will be swept away from inflation figures. Indonesia's core inflation - which excludes volatile food and administered prices - was 5.02 percent (y/y) in October.

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On 25 October 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 the government's fifth stimulus package, Indonesia's tourism and automotive industries, Bank Indonesia's inflation forecast, a stock & rupiah update, the latest World Bank report, commodity updates, and more.

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The central bank of Indonesia (Bank Indonesia) expects to see a sharp slowdown in inflation in the last couple of months of 2015. Currently, the annual inflation pace stands at 6.83 percent (y/y). However, by the year-end Bank Indonesia estimates the consumer price index to have eased to 3.6 percent (y/y), which would be in the lower range of its 2015 inflation target (3-5 percent y/y). This update was given by Bank Indonesia Governor Agus Martowardojo when meeting the Financial Sector Stability Coordination Forum (FKSSK).

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Car sales in Indonesia continued to decline in September 2015. Based on the latest data from the Indonesian Automotive Industry Association (Gaikindo), a total of 92,478 vehicles were sold in Southeast Asia's largest economy in September, down 9.8 percent from sales in the same month last year. Indonesian car sales have been slowing since the all-time sales peak in 2013 amid the country's easing economic growth pace (triggering weaker purchasing power).

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On 4 October 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 the government and Bank Indonesia’s new economic policy package, an update of inflation and manufacturing activity, US interest rates the impact of El Nino on coffee and palm oil production, and much more.

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The government of Indonesia may cut fuel prices in the fourth quarter of 2015 in an effort to boost people's purchasing power and reduce costs for local manufacturers. The move would be part of the government's stimulus package that is expected to be announced next week. On 9 and 29 September the Indonesian government had already unveiled the first two installments of the policy package. Contrary to the first two installments, the third one should bear fruit on the short-term.

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Indonesia experienced deflation, with consumer prices falling by 0.05 percent (month-on-month), in September 2015 on the back of lower food and transportation prices. Examples of lower food prices include chicken meat, eggs, chili peppers, onions and cooking oil. Regarding lower transportation costs it was particularly lower air transport tariffs that contributed to deflation. On an annual basis, Indonesian inflation eased to 6.83 percent in September, down from 7.18 (y/y) in the preceding month, and below analysts' estimates at 7.0 (y/y).

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On 27 September 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 Bank Indonesia’s new policy package, GDP growth, geothermal development, a stocks & rupiah update, September inflation, and much more.

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The central bank of Indonesia (Bank Indonesia) estimates that inflation will ease below seven percent year-on-year (y/y) in September 2015 on the back of lower prices of raw foods and lower administered prices (including fuel and electricity) in the post the Ramadan and Idul Fitri period. Bank Indonesia Governor Agus Martowardojo said the central bank expects inflation at around 6.95 percent (y/y) in September.

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In line with expectation, the central bank of Indonesia (Bank Indonesia) decided to keep its key interest rate (BI rate) at 7.50 percent for a seven consecutive month in September’s Board of Governor’s meeting (17/09) as it aims to stabilize the rupiah amid global volatility caused by looming higher US interest rates and China’s hard landing (as well as yuan depreciation), while combating inflation which stood at 7.18 percent (y/y) in August. The overnight deposit facility rate and lending facility rate were left unchanged at 5.5 percent and 8 percent, respectively.

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Today (20/10), Central Jakarta seems to have changed into one big party as Joko Widodo was inaugurated as Indonesia’s seventh president earlier this morning. For the remainder of the day celebrations will be held at Monas (National Monument) and surrounding areas. However, it is of vital importance that Widodo (popularly known as Jokowi) will start to focus on this presidential duties tomorrow as the country is facing a number of economic challenges. What are these challenges?

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Bank Indonesia decided to hold the key interest rate (BI rate) at 7.50 percent in October, with the Lending Facility and Deposit Facility rates kept at 7.50 percent and 5.75 percent, respectively. This level is expected to help control inflation at 4.5±1 percent in 2014 and 4.0±1 percent in 2015, as well as to reduce the current account deficit to a more sustainable level. Despite stable domestic conditions, Bank Indonesia sees risks: contagion risk stemming from US monetary tightening and possible higher subsidized fuel prices.

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The central bank of Indonesia (Bank Indonesia) released a press statement on Wednesday evening (01/10) in which it set out its view on the country’s trade balance and inflation after the latest economic data had been released by Statistics Indonesia (abbreviated BPS) earlier on the day. Based on information of BPS, Indonesia’s September inflation was relatively low at 0.27 percent month-to-month (m/m), while the August trade balance swung back into a deficit at USD $318.1 million.

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The central bank of Indonesia (Bank Indonesia) will not lower its key interest rate (BI rate) until accelerated inflation (brought on by the looming subsidized fuel price hike at the end of the year) has eased and US interest rates are stable (the US Federal Reserve may raise its key interest rate in the second or third quarter of 2015). This implies that the relatively high interest rate environment in Indonesia (the key BI rate has been at 7.50 percent for almost a year) will continue (to safeguard financial stability) at the expense of higher economic growth.

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The central bank of Indonesia (Bank Indonesia) kept its key interest rate (BI rate) at 7.50 percent for the tenth consecutive month as inflation is under control and well within the year-end target of the central bank (3.5-5.5 percent). The lending facility and deposit facility were kept at 7.50 percent and 5.75 percent, respectively, at Thursday’s Board of Governor’s Meeting (11/09). The central bank also expects that the current interest rate environment is capable of curbing the country’s wide current account deficit.

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The government of Indonesia agreed with the House Budget Committee to adjust the economic growth target of Southeast Asia’s largest economy in 2015 to 5.8 percent, 0.2 percentage point up from the initial growth target proposed by the government in the Financial Memorandum as well as the 2015 State Budget Draft (APBN). Still, the 5.8 percent gross domestic product (GDP) growth target constitutes the lowest growth target set in Indonesia’s state budget (excluding revised state budgets) since the year 2010.

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The benchmark stock index of Indonesia (Jakarta Composite Index, abbreviated IHSG) ended at a record high on Wednesday (03/09) as market sentiments were positive after the Indonesian government raised USD $1.5 billion from 10-year dollar-denominated Islamic bonds (known as sukuk) on Tuesday (02/09). Foreign investors submitted USD $10 billion worth of bids, six times the amount offered, showing that they are confident about the country’s current and future economic prospects.

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Speculation has emerged that Indonesian President-elect Joko Widodo (Jokowi) plans to raise prices of subsidized fuels immediately after taking office in late October 2014. On Tuesday (02 /09), Jokowi said that he sees no other option than to raise these prices in an effort to relieve the budget deficit, curb the wide current account deficit and make more funds available for long-term productive public investments (such as on infrastructure, healthcare and education). The government has set aside IDR 291.1 trillion (USD $25 billion) for fuel subsidies in 2015.

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Contrary to the positive performance of the benchmark stock index of Indonesia on Monday’s trading day (01/09) and despite positive domestic economic data released by Statistics Indonesia, the Indonesian rupiah exchange rate depreciated 0.22 percent to IDR 11,716 per US dollar based on the Bloomberg Dollar Index on Monday (01/09). The main reason for the currency’s depreciation is the strengthening US dollar as US economic data are improving and inflation is slowing in the Eurozone.

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In the past days, Indonesia’s fuel subsidy policy has been in the spotlight of Indonesian media continuously. When it was reported that incumbent President Susilo Bambang Yudhoyono (SBY) and newly elected president Joko Widodo would meet on the island of Bali this week to discuss various transitional matters, speculation emerged that the country’s generous fuel subsidies, which seriously burden the government’s budget as well as current account, might be wound down before the new government is inaugurated in October 2014.

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