Indonesia's central bank (Bank Indonesia) decided to raise its benchmark interest rate (BI rate) by 50 basis points to 7.0 percent on Thursday (29/08) in order to support the weakening rupiah amid slowing global economic growth. The rupiah has been on a long losing streak and has fallen to its lowest level against the US dollar in four years. The BI rate had already been raised in June and July from a historically low 5.75 percent to 6.50 percent. Today, an extra meeting was scheduled to discuss policy measures.

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Finance minister Chatib Basri said that the Indonesian government should revise its outlook for GDP growth in 2014 from 6.4% (mentioned in the 2014 State Budget) to about 6.0%. A more realistic outlook, which is in line with the current global and domestic financial context, is needed. Global uncertainty due to the possible ending of the Federal Reserve's quantitative easing program has resulted in capital outflows from emerging markets, including Indonesia. Various countries, developed and emerging ones, have lowered outlooks for 2014 GDP growth.

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Indonesia's central bank, Bank Indonesia, decided today (15/08) to keep its benchmark interest rate (BI rate) at 6.50 percent. In recent days, heavy speculation emerged about whether Bank Indonesia would raise the BI rate for the third consecutive time in three months as the country is plagued by higher inflation (8.61 percent year-on-year in July 2013) and a weakening rupiah. Reluctance to raise the interest rate again seems to indicate that the Bank gives priority to economic growth, which has slid to a three-year low at 5.81 percent in Q2-2013.

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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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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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A discount war ahead of Lebaran, the traditional celebration that follows after the holy fasting month of Ramadan is finished and when many Indonesians go back to their place of origin for a few days, is expected to spur car sales in July. It is a normal phenomenon that car sales increase ahead of Lebaran because an amount of people need a new car to carry them back to their places of birth. But this year the increase in car sales is expected to exceed sales figures in previous years as wholesalers use discount actions to reduce their car stockpiles.

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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, has raised its benchmark interest rate (BI rate) and deposit facility rate (Fasbi) by 50 bps to 6.50 percent and 4.75 percent respectively. Bank Indonesia governor Agus Martowardojo said that this policy change is necessary to keep Indonesia's inflation figure within the target range. Last month, prices of subsidized fuels were raised by the government, which led to higher inflation in June (5.90% YoY). However, the impact of higher fuel prices is expected to make a deeper impact in July.

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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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Investment realization in Indonesia grew 30.2 percent to IDR 192.8 trillion (USD $19.8 billion) in the first six months of 2013 (compared to the same period last year). This result implies that 49.4 percent of the investment target for full 2013 has been achieved. The Indonesia Investment Coordinating Board (BKPM) aims to collect IDR 390.3 trillion in investments this year. This target is divided in domestic direct investment (DDI) of IDR 117.7 trillion and foreign direct investment (FDI) of IDR 272.6 trillion.

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Indonesia's main stock index (IHSG) increased 3.98 points to close at 4,724.41 on the last trading day (19/07). During last week, the index rose a limited 1.97 percent amid the context of a weakening IDR rupiah (Indonesia's currency even fell below the psychological boundary of IDR 10,000 against the US dollar). The IHSG's performance last week was mainly supported by rising shares in the country's finance, property, construction and metal mining sectors, while the cement and plantation sectors were corrected.

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Indonesia's main stock index (IHSG) ended the last trading day of this week in the plus. The index rose 0.08 percent to 4,724.41. The growth was limited because most Asian stocks fell as investors are looking for profit after a positive trading week. Global stock indices had a relatively good week after Ben Bernanke stated that the quantitative easing program (the Federal Reserve's monthly USD $85 billion bond-buying package), will continue as long as the US economy needs it, which gives rise to a low interest rate environment.

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Although the main stock index of Indonesia (IHSG) ended on a positive note last Friday (05/07) by rising 0.46 percent to 4,602.81, foreign investors still sold a net IDR 262 billion (USD $26.5 million) worth of shares, while the value of transactions in the regular market was only IDR 3.17 trillion (USD $320.2 million). The rise of the IHSG at the end of last week was more due to support from Asian indices that were up after the European Central Bank and Bank of England kept interest rates at 0.5 percent.

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Without any support from the United States, where Wall Street was closed due to the 4th of July festivities, stock indices in Europe found their way up. President of the European Central Bank, Mario Draghi, caused positive market sentiments after stating that the interest rate will remain low for a long while and that the current monetary (easing) policy will remain unchanged. Stock indices in Germany, France, Great Britain and the Netherlands went up between 2.1 and 3.1 percent on Thursday's trading day (04/07).

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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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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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Despite strong American and European indices (which impacted positively on most Asian stock indices), Indonesia's main stock index (IHSG) continued its two-day weakening trend. Standard & Poor's decision to downgrade Indonesia's BB+ credit rating outlook from positive to stable was a major reason for foreign investors to start selling their Indonesian assets. At the end of Friday's trading day (03/05/13), the index stood at 4,925.48, an 1.37 percent fall.

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