The latest Consumer Confidence Survey released by Indonesia’s central bank indicated that Indonesian consumers were more optimistic in January 2015 (compared to the previous month) on the back of recent fuel price cuts. The index, based on a total of 4,600 households across 18 major Indonesian cities, climbed to 120.2 points in January, up from 116.5 in the preceding month (a score above 100 signals consumer optimism). In December the index had declined due to higher administered fuel prices.

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Inflation in Indonesia is expected to have eased to 7.50 percent year-on-year (y/y) in January 2015 on the back of cheaper domestic fuel prices (triggered by sliding global oil prices). The month-on-month pace (m/m) in the first month of 2015 may have tumbled to near zero percent from 2.46 percent (m/m) in December 2014. Last year, Indonesian inflation had accelerated to 8.36 percent (y/y) primarily due to the implementation of higher prices for government administered low-octane gasoline and diesel in November 2014.

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The Indonesian government, central bank (Bank Indonesia) and Commission XI of the House of Representatives (DPR) agreed to revise several macroeconomic targets in the Revised 2015 State Budget (APBN-P 2015). The revisions include the country’s economic growth (GDP) pace, the average rupiah exchange rate, and inflation target. In essence, the revisions indicate that Indonesian authorities have become less optimistic about the Indonesian economy in 2015 amid external pressures.

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The current account deficit of Indonesia, which is expected to have improved slightly from 3.3 percent of the country’s gross domestic product (GDP) in 2013 to about 3 percent of GDP in 2014, is forecast to continue to improve in 2015 hence placing less pressures on the rupiah exchange rate and the economy in general. A wide current account deficit makes the country vulnerable to capital outflows in times of global shocks (for example looming higher US interest rates) as the deficit signals that Indonesia relies on foreign funding.

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The central bank of Indonesia (Bank Indonesia) decided to keep its benchmark interest rate (BI rate) at 7.75 percent at its Board of Governors’ Meeting on Thursday (15/01). The country’s Lending Facility and Deposit Facility were maintained at 8.00 percent and 5.75 percent, respectively. According to the bank this interest rate environment is sufficient to push inflation, which has accelerated to 8.36 percent year-on-year (y/y) in December due to fuel subsidy reforms, back towards its target of 3 to 5 percent (y/y) in 2015.

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Despite having intervened to support the rupiah exchange rate, Indonesia’s central bank announced that the country’s foreign exchange reserves rose USD $800 million to USD $111.9 billion at the end of December 2014. The rise was primarily due to foreign exchange income from Indonesia’s oil and gas exports as well as the withdrawal of government’s foreign debt. Tirta Segara, Executive Director of Bank Indonesia, said that foreign exchange savings and banks swaps with Bank Indonesia had also increased at the end of 2014.

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Although many currencies weakened against the US dollar after the US Federal Reserve stated that it is on track to raise its key Fed Fund Rate "somewhere next year" amid structural improvement of the US economy (after having kept the rate near zero for a "considerable time"), Indonesia's rupiah opened strong on Thursday (18/12). Based on the Bloomberg Dollar Index, Indonesia’s currency had appreciated 0.91 percent to IDR 12,553 per US dollar at 9:15 local Jakarta time.

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Indonesia’s central bank decided to keep its benchmark interest rate (BI rate) at 7.75 percent at Thursday’s Board of Governors’ Meeting (11/12). The Lending Facility and Deposit Facility were kept at 8.00 percent and 5.75 percent, respectively. The central bank is convinced that the current interest rate levels are effective to combat short-term inflationary pressures (triggered by the implementation of higher subsidized fuel prices in mid-November) pushing it back to the target corridor of between 3 and 4 percent (y/y) in 2015.

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The central bank of Indonesia projects non-performing loans (NPL) to rise to 2.4 percent of the country’s total outstanding loans by the end of the year, significantly up from 1.8 percent at the end of last year. Despite the acceleration of bad loans in Indonesia, the institution stated that it is still manageable. Meanwhile, loan growth in Indonesia is estimated to slow to 11 or 12 percent (y/y) by the end of 2014 (the slowest pace since 2010), down from 21.4 percent (y/y) in 2013 primarily due to the central bank’s monetary tightening policy.

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The central bank of Indonesia announced that the country’s foreign exchange reserves declined USD $900 million to USD $111.1 billion at the end of November 2014. The decline was primarily due to government debt repayments and the central bank’s use of foreign exchange to engage in monetary management. Meanwhile, the Indonesian rupiah exchange rate - which had touched six year lows in recent days - appreciated 0.08 percent to IDR 12,299 per US dollar on Friday (05/12) based on the Bloomberg Dollar Index.

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One of the sectors that showed exceptional growth in 2012 was Indonesia's property market. On average, net profit of companies engaged in Indonesia's property sector grew 68 percent during the full year. Of the 45 property companies that are listed on the Indonesia Stock Exchange (IDX), 26 posted net profit growth that exceeded 50 percent. But the success story did not end there. In the first quarter of 2013, the property sectoral index of the IDX continued its fast pace by rising over 41 percent.

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After two consecutive days of decline, the Jakarta Composite index (IHSG) had no intention to continue its fall. Indonesia's main index was able to rise 0.43 percent to 4,999.75 points on Monday 29 April 2013. Stocks that had been weakening in recent days were popular among investors. Moreover, both Asian stock indices and foreign net purchases of Indonesian stocks supported Indonesia's index, although it fell short of reaching the psychological boundary of 5,000 points.

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Rising American stock indices on Wednesday provided solid support for stock indices around Asia the following day, including Indonesia's main index (IHSG). Amid this global positivity, market players were eager to add stocks to their portfolios. News from Japan, China and the Indonesian central bank's announcement to maintain its low benchmark interest rate were well-received, particularly by domestic market players. It made the IHSG rise to 4,924.26, a 0.96 percent gain.

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The central bank of Indonesia (Bank Indonesia, or BI) decided to maintain its record low policy rate for the 15th straight month at 5.75 percent as it is considered consistent with its inflation target range of 3.5-5.5 percent in 2013 and 2014. The central bank also stated that the global economic recovery is accompanied by many uncertainties which result in a lower forecast for Indonesia's economic growth. The full press release of Bank Indonesia can be read below.

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Current Finance minister Agus Martowardojo is approved by Indonesia's Parliament (DPR) to replace Darmin Nasution as governor of Indonesia's central bank (Bank Indonesia) in May 2013. Martowardojo, who has been active in banking for over two decades and had a successful term as head of state-controlled Bank Mandiri, was finance minister since May 2010 after taking over from Sri Mulyani, who was pressured out of Indonesian politics.

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This week, the World Bank published its Indonesia Economic Quarterly (IEQ, edition March 2013) titled 'Pressures Mounting'. It reports on key developments over the past three months in Indonesia’s economy, and places these in a longer-term and global context. To read the whole report, please visit the World Bank's website at www.worldbank.org or download this edition directly through this link. Below we present the executive summary.

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Apparently, market participants were eagerly waiting for positive news regarding stimulus packages that various central banks will apply to boost local economies. Once the news spread, investors hunted for stocks that previously weakened. Moreover, increased manufacturing data from the USA and Europe contributed to positive market sentiments. Lastly, China indicated to maintain its economic pace of 7.5 percent GDP growth this year.

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On Tuesday's trading day, the Indonesia Stock Exchange (IHSG) was not able to maintain its record breaking upward movement. China's possible decision to limit credit growth in the property sector and the election in Italy contributed significantly to the decline of the IHSG. Moreover, it was influenced by poor openings of European stock markets. Investors thus decided to engage in profit taking, while waiting for further global developments.

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President Susilo Bambang Yudhoyono has nominated Agus D.W. Martowardojo, currently serving as Finance minister, to replace Darmin Nasution as governor of Bank Indonesia, Indonesia's central bank. Nasution, who has been governor since September 2010, will see his term end in May this year. To become the next governor, Martowardojo still needs approval of Indonesia's House of Representatives (DPR), and that might be a bottleneck.

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Recent concerns about a global currency war, which is considered to threaten worldwide economic and financial stability, has prompted Indonesia's Economic minister Hatta Rajasa to ensure that Indonesia will not participate in such a tactic. The Central Bank of Indonesia (Bank Indonesia) has in fact been selling US dollars to support the IDR rupiah, which has been under growing pressure lately due to Indonesia's current account deficit and the risk of capital outflows.

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