The Indonesian government and Commission XI of the House of Representatives (DPR) agreed on several macroeconomic projections for the 2013 Revised State Budget (RAPBN-P 2013). The government requested a number of modifications to the 2013 State Budget as earlier assumptions, mentioned in the original 2013 State Budget, were not in line with the current economic conditions. Before reaching the agreement, fractions in the commission changed a number of proposed revisions of the government.

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The government of Indonesia expects inflation to rise to 7.2 percent in 2013 because of the increase in the price of subsidized fuel in June, and expects it to ease to 4 percent in both 2014 and 2015 provided that good monetary policy is implemented. This good monetary policy should particularly be targeted at maintaining food security. The projections were presented by the Fiscal Policy Agency (Badan Kebijakan Fiskal), the Ministry of Finance, and Indonesia's central bank Bank Indonesia.

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The central bank of Indonesia (Bank Indonesia, or BI) kept its benchmark interest rate at 5.75 percent and its overnight deposit facility rate (FASBI) at four percent as the country's core inflation figure is still within the target range of the central bank (3.5-5.5 percent). Core inflation currently stands at 4.12 percent (YoY). However, as the price of subsidized fuel is expected to rise in June, inflation may increase and could trigger a policy response by Bank Indonesia later this year.

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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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Similar to the International Monetary Fund (IMF), the Asia Development Bank has warned that Asia can become hit by an asset bubble as central banks are loosening monetary policy. Besides Japan's program to inject USD $1.4 trillion into the domestic economy, America's Federal Reserve and United Kingdom's Bank of England will increase their money supplies to spur economic growth. These measures can result in economic overheating as well as asset bubbles across the Asian region.

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In April 2013, Indonesia's inflation rate eased 0.10 percent month-on-month, or 5.57 percent year-on-year. According to Statistics Indonesia (Badan Pusat Statistik, abbreviated BPS) April's deflation was triggered by easing food and clothes prices. Food items that became cheaper last month included garlic, chili, and chicken meat. Particularly rice contributed to the country's deflation as the harvesting season in Indonesia has set in. Core inflation is 4.12 percent (YoY).

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Indonesian newspaper Investor Daily reported that stocks at the Indonesia Stock Exchange are still relatively cheap compared to regional stock indices. Currently, the price to earnings ratio (P/E ratio) of Indonesia's main index is about 18. In contrast, South Korea's Kospi index amounts to 34, Japan's Nikkei 28, Taiwan's Taiex 23, and Philippines' PSE stands at 23 times earnings. As the Indonesian economy as well as its companies' profit figures are projected to grow, the P/E is expected to fall to 16 this year.

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Today, Statistics Indonesia (Badan Pusat Statistik, abbreviated BPS) released Indonesia's inflation figures for the month March 2013. According to Suryamin, head of BPS, the country's inflation last month reached the level of 0.63 percent, the highest March inflation level in five years. Particularly food prices drove the inflation rate upwards. Year-on-year inflation now stands at 5.90 percent, while year-to-date inflation (January-March) is 2.41 percent.

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Indonesia's central bank (Bank Indonesia) expects the Indonesian economy to grow between 6.3 and 6.8 percent in 2013, supported by strong domestic consumption and foreign investment, with inflation rising by about 4.5 percent. Indonesian exports are expected to increase due to better global demand for Indonesia's commodities such as coal and palm oil, with commodity prices rising accordingly. But some problems in Indonesia's financial system remain to be solved.

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The Ministry of Energy and Resources stated that the Indonesian government will go ahead with the increase in electricity rates this year. Up to the end of this year, electricity rates will increase every quarter by about four percent to reach a total increase of 15 percent. In early January, the first rate increase was introduced by raising the tariff of electricity sold by state-owned Perusahaan Listrik Negara (PLN), the sole electricity provider in Indonesia. 

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Similar to the Jakarta Great Sale event, Indonesia's main stock index (IHSG) trades its stocks at low prices as foreign investors have sold large parts of their Indonesian stock assets in recent weeks. Last week, foreign investors sold IDR 4.9 trillion (about USD $492.4 million), meaning that this year's accumulated foreign net buying has evaporated. Will these sales continue? Yes, I think so. Foreigners have invested about IDR 144 trillion in Indonesia's capital markets between 2007 and Q1-2013. As such, there is still plenty to sell.

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It is official. As of Saturday 22 June 2013, after months of uncertainty and speculation, the price of Indonesia's subsidized fuel has finally been raised. Starting from 0.00 am (midnight) on Saturday, all Indonesians have to pay a higher price of gasoline and diesel. Gasoline has been raised by 44 percent to IDR 6,500 (USD $0.66) and diesel by 22 percent to IDR 5,500 (USD $0.56) per liter. The minister of Energy and Mineral Resources, Jero Wacik, made the announcement on late Friday evening, after which the hike took effect immediately.

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Indonesia's main stock index (IHSG) moved wildly last week. During the first two days of the week, the index fell to 4,609.95 points, which is considerably below its record high level of 5,214 on 20 May 2013. However, on the last trading day of the week (14/06), a 3.32 percent recovery occurred. Generally, it were domestic market participants that supported the IHSG. Foreign market participants continued to sell parts of their Indonesian stock portfolios. Total foreign selling totaled IDR 9 trillion (USD $910.4 million) last week.

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On Friday (14/06), the main stock index of Indonesia (IHSG) jumped 3.32 percent to 4,760.74 points as financial market participants were optimistic about the effects of the higher central bank interest rate that was announced the day before. Moreover, Indonesia's IHSG was supported by a green wave across Asian stock markets, which was partly due to a strong rebound in markets in the United States on Thursday (13/06). Stocks in Indonesia's banking and property sectors were the top-gainers on Friday's trading day.

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On Thursday (13/06), Indonesia's main stock index (IHSG) could not continue the recovery it had shown on the previous day. The index fell 1.92% to 4,607.66 points amid international and domestic concerns. Investors are worried about central banks' policies and the World Bank's downgrade of global economic growth in 2013. On the domestic side, negative sentiments were brought on by the fuel subsidy issue (and its inflationary impact), the weakening rupiah, the BI rate hike, falling foreign exchange reserves, and the trade deficit.

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Less than 24 hours after having raised the overnight deposit facility rate (known as Fasbi) by 25 bps to 4.25 percent, Indonesia's central bank (Bank Indonesia) also raised its benchmark interest rate (known as the BI rate) by 25 bps to 6.0 percent. Both these policy responses were conducted in order to support the IDR rupiah, which is one of the worst performing Asian currencies against the US dollar in 2013. Indonesia's central bank expects growing inflationary pressures as the Indonesian government intends to cut fuel subsidies this June.

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Despite continued foreign selling of Indonesian stocks on today's trading day (12/06), we see that there is an end in sight to the sell of. During the last three days, Indonesia's main index (IHSG) had fallen considerably. The fall was led by the big cap companies that generally are target of most foreign investment. As stock prices of these companies had experienced a free fall in previous days, it made them attractive for limited buying. However, negative sentiments that have coloured the stock market recently, have not waned yet.

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On the very last trading day of May (31/05), Indonesia's main stock index (IHSG) closed at 5,068.63 points. During the month, the index showed a volatile performance as it reached its peak at 5,251.29 and its low at 4,907.59 points. Overall, the IHSG continued to rise in May despite various negative sentiments. Foreign investors recorded a net sell of IDR 7.9 trillion (USD $806.12 million). However, optimistic domestic investors kept Indonesia's index in the green zone.

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In the first five months of 2013, Indonesia’s main stock index (IHSG) rose 16.62 percent to a near record high level at 5,068.63 points on Friday (31/05/13). Initially, both analysts and investors were concerned that Indonesia would experience its traditional ‘May Cycle’, the term which refers to the usual fall of Indonesia’s index in the month of May. However, reality proved different as the index recorded a small gain of 7.71 points (0.15 percent) last month.

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Asian stock markets were mixed on Thursday (30/05). Particularly Hong Kong's Hang Seng Index (HSI) was negatively influenced by Wednesday's falling stock indices in Europe and the USA. In this context, Indonesia's main index (IHSG) was hit as well and fell 1.37 percent to 5,129.65 points. Moreover, the continuing decline of the IDR rupiah makes market participants less enthusiastic to purchase Indonesian stocks. Foreigners were also anxious to sell part of their stock portfolios.

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