A. Money in Circulation

Money in circulation, MI and M2 shows an upward trend reaching IDR 782 trillion and IDR 3,168 trillion in October 2012 respectively, higher than IDR 779 trillion and IDR 3,050 trillion in June 2012. This shows an increase of 0.3% and 3.8% from June to October 2012. In terms of year on year, MI and M2 in October 2012, constituted an increase of 17.6% and 18.3% from the values for October 2011. Nonetheless, compared with values for September 2012, the level of MI   showed a decrease of 1.7 %.    

 

 

B. Inflation

Figure 5 shows that inflationary pressure has increased since the beginning of 2012, which is in line with an increase in domestic demand. Inflation level, which decreased below 4% during the 2008/2009 global financial crisis, edged upwards during April-August 2012 to 4.5%, which though decreased to 4.3% in September 2012, moved upwards in October to 4.6%.

In November 2012, the Central Bureau of Statistics recorded inflation level of 4.32% (yoy), which is equivalent to 3.73% for the January-November calendar year terms. However, inflation in November 2012 which was lower than that recorded in the previous month was still higher than the figure for November 2011, which was only 4.15%. What should be noted is that rising food prices have played a part in an upward movement in the inflation level. The administered and volatile inflation is calculated for about 2.70% and 5.78% on year on year basis respectively in November 2012.

Meanwhile, in November 2012 core inflation was 0.14%, which is equivalent to 4.40% in annual terms, slightly higher than general inflation (Figure 5). High core inflation reflects high consumer demand which can not be met by existing supply of goods. In light of that, this is an issue, to which the economic authority must pay serious attention as it poses the danger of creating an over heated economy if not handled well.

 

Higher inflation level in November 2012 than the same period last year, is reflected in the increase in indices of several expenditure categories such as an increase of 0,23% for transport, communications and financial services; an increase of   0,15% for housing, electricity, water, and energy; an increase of 0.20% of processed food , beverages, and cigarettes. Meanwhile, some expenditure categories, which included food and clothings experienced deflation – 0.13% and – 0.10%, respectively.

 Commodities which contributed significantly to inflation in November 2012 were onions, which contributed 0.08%; rice 0.04%; beef 0.03%; carrots 0.02%; air transport fares 0.04%.

 

C. Interest Rate

At the start of 2012, the Indonesian Central Bank maintained the BI rate at 6%, as an effort to maintain financial system stability and condusive condition for domestic economic expansion amid global economic uncertainty. However, in February 2012, in an additional effort to promote economic growth, Bank Indonesia cut the Bank Indonesia rate by 25 basis points from 6% to 5.75%, which is still the applicable rate at the time of writing this edition.  

Other interest rates such as interest on deposits, time deposit, and SBI have followed the decrease of BI rate (see Figure 7).

 

The level of international reserves continues an upward trend and by October 2012 stood at USD 110,297.16 million, which USD 3,794.77 million higher than USD 106,502.39 million recorded in June 2012 (see Figure 8). The increase in international reserves is attributable to among other factors the surplus position in the balance of payments in the third quarter 2012 as a result of a decrease in current account deficit which in turn was due to an increase   in the trade suruplus that arose from a decrease in imports, especially consumption goods, and a surplus in Capital and Financial Accounts. The increase in international reserves should improve investor confidence as well as protect the economy from the fallout of a deeper world recession.

 

D. Exchange Rate and Share Prices

The exchange rate of Rupiah against the US Dollar continues to depreciate throughout 2012. The depreciation was in part attributable to a deficit in balance of payments position recorded in the first and second quarters of 2012, which in turn came as a result of a decline in international reserve position and increasing uncertainty in the global economy.

The movement of the exchange rate of Rupiah during the third quarter 2012 though continued to depreciate but at lower rate that in the third quarter 2011. The movement of the exchange rate of the Rupiah during the third quarter 2012 experienced 2.26% depreciation (qtq) to IDR 9.491 per USD from IDR 9.277 per USD recorded in the second quarter 2012.

In the meantime, in November 2012, the depreciation of Rupiah continued hitting IDR 9,605 per USD, lower than IDR 9000 per USD at the start of the year as well as IDR 9480 per USD in June 2012. The depreciation of Rupiah is attributable to uncertainty which has characterized the handling of the debt crisis and fiscal condition in Europe, and the increase in demand for foreign exchange to pay for increasing value of imports

 

Meanwhile, the Indonesian Composite Index (IDX) in 2012 strengthened.   In November 2012 IDX moved within 4,276 levels, which is an increase compared with 3,941 at the start of the year, which constitutes 8.5% growth.