The central bank of Indonesia (Bank Indonesia) is expected to leave its interest rate regime unchanged at Thursday’s Board of Governor’s meeting. Currently, Bank Indonesia’s key interest rate (BI rate) stands at 7.50 percent, the overnight deposit facility at 5.50 percent, and the lending facility rate at 8.00 percent. The central bank seems committed to this relatively high interest rate environment as the country’s inflation accelerated to 7.15 percent (y/y) in May, while the rupiah touched a 17-year low on 9 June 2015.

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Several international institutions revised down their outlook for economic growth of Indonesia in 2015 as foreign investors have been somewhat disappointed with the performance of the new Indonesian government, while the global economic picture remains far from rosy. Goldman Sachs, JPMorgan Chase, Credit Suisse and Nomura Holdings have all slashed Indonesia’s economic growth forecast this year to below the five percent (year-on-year) mark. Last year Indonesia’s economic growth touched a five-year low of 5.02 percent (y/y).

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Car sales in Indonesia have declined 17 percent to 443,328 units in the first five months of 2015 according to the latest data from the Indonesian Automotive Manufacturers Association (Gaikindo), hence providing further confirmation that consumer demand has continued to fall amid the country’s slowing economic growth, depreciating rupiah and accelerating inflation. Car sales are one of the key indicators to measure people’s purchasing power as well as the general state of the economy.

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The central bank of Indonesia (Bank Indonesia) revised down its economic growth outlook for Indonesia in 2015. In a meeting with the House of Representatives’ Budget Committee, Bank Indonesia Governor Agus Martowardojo said that Indonesia’s GDP growth is expected to reach 5.1 percent (y/y) this year. Previously, the central bank projected economic growth in the range of 5.4 to 5.8 percent (y/y). However, after seeing weak growth in the first quarter (4.71 percent y/y), projections had to be revised.

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On 24 May 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 matters such as Bank Indonesia’s interest rate environment, revised requirements for the purchase of property, gender equality, consumer confidence, the IPO of PP Properti, luwak coffee, and more.

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Indonesian stocks continued to rise one day after the country’s central bank (Bank Indonesia) announced to leave the interest rate policy unchanged and, instead, choosing to loosen its macro-prudential policy by revising the LDR-RR regulation, LTV policy for mortgage loans and down payments on automotive loans, hence increasing liquidity and boosting credit growth in the banking sector. Indonesia's rupiah, however, depreciated sharply after the market opened on Wednesday (20/05) due to the strong US dollar.

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Indonesia's central bank (Bank Indonesia) showed that it is committed to its relatively tight monetary stance as it left interest rates unchanged at its May Board of Governor’s Meeting. Despite pressures from the government and business players to cut interest rates (which would boost economic growth), Bank Indonesia maintained its key BI rate at 7.50 percent, the overnight deposit facility at 5.50 percent and the lending facility rate at 8.00 percent. In the first quarter of 2015 Indonesia’s economic growth had slowed to a disappointing 4.71 percent (y/y).

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Indonesia’s rupiah continued to weaken on Monday’s trading day (18/05). The Indonesian rupiah had depreciated 0.22 percent to IDR 13,113 per US dollar by 12:08 pm based on the Bloomberg Dollar Index as market participants are waiting for results of the central bank’s Board of Governor’s Meeting, scheduled for Tuesday (19/05). At this meeting Indonesia’s central bank (Bank Indonesia) will discuss and determine its stance on the country’s interest rate environment. Currently, the key rate (BI rate) is set relatively high at 7.50 percent.

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On 17 May 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 matters such as updates on Indonesia’s current account balance and trade balance, Indonesia’s interest rate environment, human capital development, the forest moratorium, foreign ownership of property, and more.

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The central bank of Indonesia (Bank Indonesia) is currently dealing with a dilemma. On the one hand, its relatively high interest rate environment (with the benchmark BI rate at 7.50 percent) is partly responsible for the country’s slowing economic growth as credit expansion is curtailed and economic activity declines. On the other hand, Bank Indonesia’s high BI rate is needed to safeguard Indonesia’s financial stability as inflation is still above the central bank’s target, the current account deficit nearly unsustainable, and capital outflows loom.

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It seems that the Indonesia Stock Exchange (IHSG) was blessed by the Chinese new year celebrations as it closed higher on Monday than on the previous trading day. This is a better performance than usual on the days around the new year. If we take a look at the period 2008-2012, the IHSG declined three times on the day before new year, and twice on the day after. This year, the IHSG declined on the day before by -0.26% and increased by 0.27 on the day after.

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