After a trading week that was characterized by high gains in the stock and financial markets on optimism that Joko Widodo (Jokowi) will become the next president of Indonesia, both the Indonesian rupiah exchange rate and benchmark Jakarta Composite Index fell today (11/07). This seems an obvious sign that the euphoria about a Jokowi win has waned and investors are looking again to the true economic fundamentals of Southeast Asia’s largest economy. By 13:00 pm local Jakarta time, the Jakarta Composite Index had fallen 1.66 percent.

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The central bank of Indonesia (Bank Indonesia) decided to keep its benchmark interest rate (BI rate) at 7.50 percent at today’s Board of Governor’s meeting. The lending facility as well as deposit facility were maintained at 7.50 and 5.75 percent, respectively. The central bank believes that the current interest rate environment is able to push the inflation figure back to its target range of between 3.5 and 5.5 percent by the year-end. Earlier this month, Statistics Indonesia announced that inflation has eased to 6.70 percent (year-on-year) in June 2014.

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Indonesian presidential candidate Joko Widodo, more popularly known as Jokowi, intends to increase the government’s tax revenue by allowing foreigners to buy luxury apartments, worth at least IDR 2.5 billion (approximately USD $211,864), in the larger cities of Indonesia and on the island of Bali (a popular tourist destination). Currently, foreigners cannot buy property in Indonesia. However, indirect structures, such as the use of their Indonesian wife’s name or an agent are common, meaning that the state loses out on luxury tax income.

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According to data from the Indonesian Automotive Industry Association (Gaikindo), domestic car sales in Indonesia rose 13 percent to 109,706 car units in June 2014 from the previous month (97,147 vehicles) as people increased car purchases ahead of the Idul Fitri (Lebaran) festivities, which commence after the holy fasting month of Ramadan has ended on 28 July. Idul Fitri involves the exodus of millions of Indonesians from the cities to their places of origin. Ahead of this celebration, car sales always increase.

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On 15 June 2014, 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 topics such as the central bank’s benchmark interest rate policy, car sales, foreign investment, a rupiah exchange rate update, the latest news concerning the presidential elections of 2014, and more.

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The central bank of Indonesia (Bank Indonesia) announced that its foreign exchanges reserves had risen to USD $107.0 billion by the end of May 2014, up from USD $105.6 billion at the end of the previous month. This increase primarily stemmed from government oil and gas export earnings as well as an influx of foreign portfolio capital into Southeast Asia's largest economy, which reflects the positive perception of international investors with regard to the economic fundamentals of Indonesia.

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At the Board of Governors Meeting (08/05), Bank Indonesia decided to keep its benchmark interest rate (BI Rate) at 7.50 percent, the Lending Facility at 7.50 percent and the Deposit Facility at 5.75 percent. Bank Indonesia considers this monetary policy consistent with efforts to direct inflation back to its target level of 4.5 ± 1 percent in 2014 and 4.0 ± 1 percent in 2015, as well as to further ease the country's current account deficit to a more sustainable level. On Friday, Bank Indonesia is expected to release current account data covering Q1-2014.

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The Indonesian rupiah exchange rate continued its recent depreciating trend on Thursday (08/05). According to the Bloomberg Dollar Index, the currency had depreciated 0.36 percent to IDR 11,619 per US dollar at 13:30 local Jakarta time. Apart from market participants' wait and see attitude ahead of results of Bank Indonesia's Board of Governors Meeting, which is held today and will inform whether the current benchmark interest rate of 7.50 percent will be maintained, increased concerns about exports to China also put pressure on the rupiah.

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The foreign exchange reserves at the central bank of Indonesia (Bank Indonesia) increased about USD $3 billion to USD $105.6 billion at the end of April 2014, the highest level in 15 months, particularly due to export earnings of government-owned oil and gas exporters. Bank Indonesia said that the current position of forex reserves is equivalent to 6.1 months of imports or 5.9 months of imports and servicing external debt (well above the international standard of three months of imports). Today, the central bank's Board of Governors Meeting is held.

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On 20 April 2014, 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 topics such as comments on the future policy of Bank Indonesia, the investment climate in Batam, an updated profile of Telekomunikasi Indonesia, IPOs in 2014, an analysis of the unprocessed minerals export ban, and more.

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Contrary to expectations, the central bank of Indonesia (Bank Indonesia) left its monetary policy unchanged at the July policy meeting. The benchmark interest rate (BI rate) was kept at 6.50 percent, while the deposit facility rate and lending facility rate were kept at 4.50 percent and 7.00 percent, respectively. The 7-day reverse repurchase rate, which is set to become the central bank's new benchmark on 19 August 2016 - replacing the BI rate - was left at 5.25 percent.

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In the first three policy meetings of 2016, Indonesia's central bank (Bank Indonesia) cut its benchmark BI rate gradually yet aggressively from 7.50 percent to 6.75 percent as inflation, the rupiah rate and Indonesia's current account deficit were regarded as 'under control'. At the same time, Indonesia's lender of last resort acknowledged the BI rate has failed to influence borrowing costs and market liquidity effectively and therefore decided to adopt the seven-day reverse repurchase rate (reverse repo) as the nation's new benchmark starting from August 2016.

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One of the leading diversified conglomerates in Indonesia, Astra International, is facing challenges. Demand for cars has been on the decline in Indonesia over the past two years. This is a big challenge for the company because the automotive sector accounts for about half of Astra's total earnings. Meanwhile, its heavy equipment & mining segment and the financial services segment have been under severe pressure. Net income in the heavy equipment & mining segment plunged 55 percent (y/y) in Q1-2016, while net income in the financial services segment tumbled 46 percent (y/y) over the same period.

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Although Indonesia's economic growth in the first quarter of 2016 was below analysts' estimates, most analysts agree that the nation's economic growth in the second quarter of the year could reach 5 percent (y/y), supported by domestic consumption and capital inflows. In Q1-2016 Indonesia's economic growth climbed at a pace of 4.92 percent (y/y) - accelerating from the 4.73 percent (y/y) GDP growth pace in the same quarter one year earlier - but significantly below estimates of most analysts. For example, Bank Indonesia expected GDP growth around 5.1 - 5.2 percent (y/y).

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If we look back on the month of April, two important matters - related to the economy - occurred in Indonesia this month: (1) in the first week of April, the Indonesian government managed to complete the Revised 2016 State Budget (RAPBN-P 2016), and, one week later, (2) the central bank (Bank Indonesia) announced it will adopt a new benchmark monetary tool per 19 August 2016 - the so-called seven-day reverse repurchase rate - that is to replace the existing BI rate (which fails to influence market liquidity effectively).

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The central bank of Indonesia (Bank Indonesia) announced on Friday (15/04) it will adopt a new monetary tool per 19 August 2016 that is to replace the existing BI rate which is considered too inefficient to influence market liquidity as it is not directly tied to Indonesia's money markets. The seven-day reverse repurchase rate (reverse repo), which stood at 5.50 percent in the central bank's last auction, is to become the nation's new benchmark. Bank Indonesia Governor Agus Martowardojo, who communicated through a teleconference from Washington DC, emphasized that the central bank will not change its monetary stance.

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Fundraising in Indonesia's capital markets touched a multi-year low in the first quarter of 2016. Based on data from Bloomberg, only IDR 142.1 billion (approx. USD $10.8 million) was raised through rights issues and initial public offerings (IPOs) on the Indonesia Stock Exchange in Q1-2016, the lowest figure in the past seven years. Analysts expect fundraising in the capital markets of Indonesia to improve from the second quarter of 2016 onward due to expected accelerating economic growth and Bank Indonesia's lower interest rate environment.

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Bank Indonesia's decision to cut Indonesia's benchmark interest rate (BI rate) gradually from 7.50 percent at the year-start to 6.75 percent in March should lead to rising credit growth in Indonesia as borrowing costs have become less expensive. Bank Mandiri, Indonesia’s largest financial institution by assets, should see its financial performance improve due to the looser monetary policy. For Trimegah Securities the new context was reason to revise its forecast for net profit and net interest income of Bank Mandiri, a state-controlled entity that is listed on the Indonesia Stock Exchange (the central government owns a 60 percent stake).

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In line with expectation, the central bank of Indonesia (Bank Indonesia) cut its benchmark interest rate (BI rate) by 25 basis points to 6.75 percent on Thursday (17/03) at its two-day policy meeting. It is the third straight month of monetary easing in Southeast Asia's largest economy. In the preceding two months the lender of last resort had also cut borrowing costs by 0.25 percent, each month. Furthermore, the deposit and lending facility rates were also cut by 25 basis points to 4.75 percent and 7.25 percent, respectively (effective per 18 March 2016).

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The decision of Indonesia's central bank (Bank Indonesia), last week, to cut its key interest rate (BI rate) by 0.25 percent to 7.00 percent and to cut the reserve-requirement ratio for commercial banks' rupiah deposits by 1 percent to 6.5 percent is a decision that should boost household consumption in Indonesia in 2016, improve people's purchasing power, give rise to a stronger automotive and property sector, and boost liquidity at local banks (hence providing room for an acceleration of credit growth in Southeast Asia's largest economy).

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