Indonesia's central bank expects that the country's monthly inflation rate will ease to below one percent in August. However, in order to meet this expectation the bank stresses that there needs to be an improvement in the food product supply through imports and good distribution practice. The latter, particularly, is problematic due to Indonesia's lack of quality and quantity in infrastructure. In July, monthly inflation rose 3.29 percent due to the start of the new school year and impact of higher subsidized fuel prices.

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Although it was clear that Indonesia would see a high inflation rate in July 2013 as the impact of higher fuel prices would kick in, Indonesia's central bank (Bank Indonesia) was surprised to see the figure go up to 3.29 percent. Currently, Indonesia's annual inflation rate stands at 8.61 percent. Bank Indonesia's governor Agus Martowardojo said that this rate is far outside the central bank's target range and announced that the institution expects annual inflation to stay above 8%  throughout 2013, higher than its previous assumption of 7.8% at end-2013.

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Today (02/08), Indonesia's bureau for statistics announced that economic growth of Indonesia in the second quarter of 2013 reached 5.81 percent (YoY), which is the lowest growth rate since Q3-2010 and also lower than most analysts as well as the Indonesian government expected. The GDP figure reflects Indonesia's cooling economy. For the fourth consecutive quarter, the rate has weakened as the country has been under pressure: high inflation, a widening trade deficit and a weakening rupiah.

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The Indonesian government assumes that the recently increased prices of subsidized fuels will translate into lower oil imports from the third quarter of 2013. Lower oil imports will result in lower demand for foreign currencies and, as such, will support Indonesia's currency, the rupiah. The value of the IDR rupiah is also influenced by market participants' expectation of inflation. Indonesia's central bank (Bank Indonesia) projects inflation to rise to 2.77 percent in July, and to slow down to 1 percent in both August and September.

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Despite a higher benchmark interest rate, higher inflation, a weakening rupiah, and global economic turmoil, four out of seven Indonesian banks that released their financial results over the first half of 2013, have posted double-digit growth. The seven banks show a combined growth of 16.2 percent. Although it is an impressive figure, it is a couple of percentage points lower than last year's performance. Indonesia's economy has slowed down to an annual economic growth of six percent and this has impacted on domestic demand for credit loans.

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Although Indonesia's currency, the IDR rupiah, has continued its weakening trend, Indonesian authorities are reassuring the people that this development is not as much caused by domestic factors but rather due to the rising US dollar against other currencies. According to data from Bank Indonesia, the Indonesian rupiah has weakened 5.99 percent to the US dollar in 2013. It is also clear that the central bank of Indonesia has decided to let the rupiah depreciate gradually instead of using its foreign exchange reserves to support the currency.

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According to various analysts and the central bank of Indonesia, the weakening of the IDR rupiah should not be too alarming as there currently is a global trend in which currencies, worldwide, weaken against the US Dollar. This situation is triggered by the economic recovery that has been experienced by the world's largest economy recently. Compared to other ASEAN members, the rupiah's decline is normal. The central bank adds that foreign capital inflows will return and will strengthen the country's currency.

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The central bank of Indonesia (Bank Indonesia) expects inflation to moderate to 4.5 percent in 2014 if the country's current account balance can be turned into a surplus. Currently, Indonesia's trade balance shows a deficit as global demand for Indonesia's commodities has reduced due to international economic turmoil, while Indonesia continues to import large quantities of oil. If the deficit can be reversed into a surplus it will curtail inflation and automatically have a positive impact on Indonesia's currency (IDR rupiah).

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After a long plenary session on Monday (17/06), Indonesia's House of Representatives (DPR) and the government have agreed to the revised 2013 State Budget (APBN-P). The revision was needed as original macroeconomic assumptions began to fall out of tune with reality. Due to global and domestic conditions a number of assumptions needed to revised down. Most controversial decision that was taken is the increase in price of subsidized fuel by 44 percent to IDR 6,500 (USD $0.66) per liter.

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The central bank of Indonesia (Bank Indonesia) decided today to raise its benchmark interest rate by 25 basis points to 6.0 percent. The decision was made amid concerns about the inflationary impact of a hike in subsidized fuel prices (planned this June) as well as increasing uncertainty in global financial markets as central banks' may scale back stimulus programs. The Indonesian rupiah has weakened considerably in 2013 and forms the worst performer in Asia after the Japanese yen among the 11 most-traded currencies tracked by Bloomberg.

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The week ended well for both the Indonesian rupiah exchange rate and the benchmark Jakarta Composite Index (IHSG). Based on the Bloomberg Dollar Index, the rupiah appreciated 0.30 percent to IDR 11,413 per US dollar at the end of Friday's trading day (16/05). Meanwhile, the IHSG surged 0.80 percent to finish just above the psychological level of 5,000 points. The good performance was supported by investors' positive response towards the latest political developments in Indonesia.

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The benchmark stock index of Indonesia - known as the Jakarta Composite Index or IHSG - rose 0.17 percent to 4,921.39 points on Tuesday (13/05), impacted by investors' reaction to positive earnings reports of Indonesian coal miners in the first quarter of 2014. Today, foreign investors recorded net buying of IDR 64 billion (USD $5.6 million) and accounted for 31 percent of trading activity. However, investors remain cautious ahead of the presidential election that is scheduled for 9 July 2014 and wait for more clarity about the (vice) presidential candidates that will compete.

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While most emerging Asian currencies fell, the Indonesian rupiah exchange rate appreciated 0.08 percent to IDR 11,523 per US dollar based on the Bloomberg Dollar Index on Monday (12/05). The depreciating Chinese yuan, after its central bank set the midrate at its lowest level in eight months, put pressure on other Asian currencies. Today, Indonesia's Finance Ministry sold IDR 10 trillion rupiah (USD $867 million) of bonds, higher than the indicative target of IDR 8 trillion rupiah. Meanwhile, Indonesia’s two-year bonds gained.

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Completely opposite to our expectations, the benchmark stock index of Indonesia (known as the Jakarta Composite Index or IHSG) managed to climb 0.57 percent to 4,862.02 points on Wednesday (07/05). The gain was unexpected as there were no clear factors that could provide positive market sentiments. Moreover, today's Asian stock indices were mostly down. Coincidence or not, tomorrow Bank Indonesia will announce whether its benchmark interest rate (BI rate) - currently set at 7.50 percent - will be changed or maintained.

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At the end of Friday’s trading day (02/05), the Indonesian rupiah exchange rate appreciated 0.32 percent to IDR 11,525 per US dollar based on the Bloomberg Dollar Index. The rupiah performed better than most of its regional emerging peers as inflation and trade data, which were released today by Statistics Indonesia, provided positive market sentiments. Indonesian inflation eased to 7.25 percent (year-on-year) in April 2014, from 7.32 percent a month earlier. Meanwhile, the country posted a trade surplus of USD $673 million in March 2014.

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On the first trading day of the week (Monday 28 April 2014), the Indonesian rupiah exchange rate depreciated 0.19 percent to IDR 11,587 per US dollar based on the Bloomberg Dollar Index. Several factors - both internal and external - influenced the rupiah as well as Indonesian stocks in a negative way. The benchmark stock index of Indonesia (known as the Jakarta Composite Index or IHSG) declined a whopping 1.61 percent to 4,818.76 points, in line with the regional trend in Asia today.

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The Indonesian rupiah exchange rate ended the week with a 0.32 percent gain to IDR 11,565 per US dollar on Friday (25/04) based on the Bloomberg Dollar Index. Despite still high local demand for US dollars ahead of the month-end (for reasons of profit repatriation, imports and debt repayments), the rupiah managed to appreciate as (foreign and domestic) investments in Indonesia were reported to have reached a new record at IDR 106.6 trillion (USD $9.4 billion) in the first quarter of 2014.

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Due to a lack of positive domestic and external sentiments, the Indonesian rupiah exchange rate has depreciated to a six-week low against the US dollar. Based on the Bloomberg Dollar Index, Indonesia's currency declined 0.66 percent to IDR 11,521 per US dollar by 16:22 local Jakarta time. In fact, several negative domestic sentiments are the reason behind the current depreciation. Firstly, revived concerns about Indonesia's current account deficit and, secondly, concerns about capital outflows due to dividend payments.

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The Indonesian rupiah exchange rate moved within limited range on Wednesday. Based on the Bloomberg Dollar Index, the currency depreciated 0.07 percent to IDR 11,436 per US dollar. Since Thursday (10/04), the rupiah has had to cope with pressures as Indonesia's legislative election was unable to provide political certainty. On the other hand, the country's improved economic fundamentals - easing inflation and the narrowing current account deficit - have resulted in capital inflows, thus supporting the rupiah.

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On Monday (14/04), the Indonesian rupiah exchange rate depreciated 0.23 percent to IDR 11,440 per US dollar according to the Bloomberg Dollar Index. This performance was in line with most other emerging Asian currencies, which weakened against the US dollar due to broad strength in the greenback as well as risk aversion. The rupiah - still the best performing emerging Asian currency so far this year - depreciated on dollar demand from local importers (while state-run banks were reported to engage in rupiah buying).

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