As a consequence of weakening economic growth, the volume of money in (M2) circulation in broad sense also showed a decline. M2 growth in October 2013 slowed to 13.02% (y-o-y) from 14.57% (y-o-y) in the previous month. On the contrary, growth in M1 increased to 10.48% (y-o-y) from 9.08% (y-o-y) in the previous month.
Figure 4: Money Supply, 2011 – 2013* (in IDR Trillion)
Growth in M2 showed declined in October 2013, conversely, MI growth higher compared with the previous month.

Source: Bank Indonesia and  CEIC (2013)
*= October 2013

Figure 5: Inflation Rates by Component Group, 2011 – 2013* (y-o-y, in %)
Inflation in November 2013 reached  8.37% (y-o-y).

Source: BPS and CEIC (2013)
*=November 2013
The downward trend in inflation was somewhat stymied in November 2013. On a year on year basis, inflation in November 2013 was 8.37%, slightly higher than 8.32% in the previous month. In November 2013, on y-o-y basis, core inflation was 4.8%, government administered prices reached 16.16%, and price fluctuation registered 12.97% mark. In the meantime, on a month by month basis Inflation in November 2013 was 0.12%, which implies that inflation for the calendar year (January – November 2013) reached 7.79%. Inflation month to month in November 2013 was (0.12%), higher than 0.09% posted in the previous month. 

High inflation in November 2013 is largely attributable to soaring prices of household commodities, water, electricity, gas, and fuel which registered an increase of 0.68% (m-t-m). This is in part is a consequence of the government decision to increase electricity basic rates as embodied in the Minister of Energy and Mineral Resources No. 30/2012 concerning electricity energy rates. In accordance with the regulation, the government implemented a phased increase of electricity energy rates in 2013. The first phase was from January 1 to March 31, 2013; the second phase ran from April 1 to 30 June 2013; the third phase went from July 1 – September 30, 2013; and the fourth phase commenced on October 1, 2013. The source of inflation was prepared foodstuffs, beverages, cigarettes, and tobacco, which rose by 0.27% (m-t-m).

Figure 6: Inflation Rate by Expenditure Group, 2011 – 2013* (m-t-m, in %)
Higher inflation in November 2013 caused by the increase in electricity energy rates an increase in prices of household items, water, electricity, and fuel contributing to inflation by 0.68%.

Source: BPS and  CEIC (2013)
*=November 2013
The level of inflation on energy’s component in November 2013 was 1.10% (m-t-m), an increase in the index from 148.24 in October 2013 to 149.87 in November 2013. The component of energy inflation for the calendar year (January – November) 2013 was 20.48%.  In the meantime, the component of energy in November 2013 contributed 0.01% to general inflation.

Subsequently, a survey of 66 cities/towns, 38 registered inflation, while 28 cities recorded deflation.  Maumere recorded the highest inflation of 1.54% (m-t-m), while Mataram and Sibolga, registered inflation of 0.03% (m-t-m). On the contrary, Sorong registered the highest deflation of 1.29% (m-t-m), while Bengkulu posted the lowest deflation of 0.02% (m-t-m).  Based on news released by BPS, some of the cities in Indonesia registered deflation because of a decrease in flight fares. Besides, the government claimed to be succeeded in reducing price fluctuations of commodities in general and vegetables and fruits in particular.

Figure 7: Developments in BI Rate, Interest rates on Bank Indonesia Certificates, Deposits and Loans 2009 – 2013* (in %)
BI rate in  November 2013 is the highest in the last three years


Source : Bank Indonesia and CEIC (2013)
*= November 2013

The central bank raised the BI rate to 7.50% on November 13, 2013. The increase in the BI rate is intended to reduce deficit on the current account, as well as an anticipation of the tapering off and debt ceiling in the United States.  The last time Bank Indonesia raised the BI rate was during the Board of Governors’ meeting on September 12, 2012, by 25 basis points from 7% to 7.25%.

Additionally, other issues that led to Bank Indonesia decision to raise the BI rate were to reduce current account deficit.  This is due to the fact that though the value of imports has declined, it is still far short of expectations. Besides, the rapid expansion credit disbursement which posted a growth of 23.1% (y-o-y) in September 2013, which is higher than 22.2% (y-o-y), registered in August 2013. To that end, BI raised the policy rate to stymie the higher than expected growth in credit.

Figure 8: Indonesian Foreign Exchange Reserves, 2011 – 2013* (in USD Billion)
Indonesian foreign exchange reserves in October 2013 posted a slight increase


Source: Bank Indonesia and  CEIC (2013)
*= October 2013
Indonesian foreign exchange reserves in October 2013 reached USD 97 billion, a slight increase compared with USD 95.7 billion in the previous month. In general, the increase in Indonesian foreign exchange reserves is attributable to a surplus on the trade balance caused by the value of exports exceeding the value of imports, or a surplus on the finance account caused by higher inflow than outflow of capital.  Besides, the increase in Indonesian foreign exchange reserves is also attributable to the inflow of funds to buy government securities and Bank Indonesia certificates.  In other words, the increase in Indonesian foreign exchange reserves posted on October 2013 is in part as a result of the government policy of issuing the government syariah securities (global sukuk) in September 2013. The Indonesian government syariah securities were issued by the Directorate General of Debt Management, Ministry of Finance to the tone of USD 1.5 Billion. It should be noted as well, that the increase in Indonesian foreign exchange reserves is also as a result of an uptick in short term capital inflow,  coupled with Bank Indonesia success in attracting foreign funds through Bank Indonesia certificates and long term foreign currency deposits. Thus, the increase of USD 1.3 Billion in Indonesian foreign exchange reserves is a combination of policies of Bank Indonesia and the government. The position of Indonesian foreign exchange reserves in October 2013 was equivalent to 5.5 months of imports or alternatively equivalent to 5.3 months of imports and servicing of government foreign debts.

Figure 9:  The Exchange Rate of Rupiah and Share Prices, 2011 – 2013*
Bank Indonesiai intervened  to prop up  Rupiah


Source:  Indonesia Stock Exchange, Bank Indonesia, and CEIC (2013)
*= November 2013

The exchange rate of Rupiah against the USD depreciated further over the last quarter.  The depreciation of Rupiah against US dollar makes US dollars more expensive. Consequently, buying US dollars requires more Rupiah than before.   The rising price of US dollars is in part attributable to the increase in demand which is higher than limited supply of the currency. To stave off an even higher depreciation of Rupiah, Bank Indonesia intervened in the money market by increasing the volume of foreign exchange. The high demand for US dollar is among other factors, attributable to the demand for the currency to repay foreign debts. As per September 2013, the value of Indonesian foreign debt was USD 159.867 billion. In the meantime, repayment of principal and interest to the tone of USD 21.025 billion was due during October –December 2013.

Nonetheless, by late November 2013, Rupiah exchange rate hovered around IDR 12,000 per USD. To that end, Bank Indonesia has had to intervene in money market in order to maintain the supply of foreign currency. Based on data released by Bank Indonesia, Rupiah exchange rate as per November 30, 2013 was IDR 11,977 per USD, which is the lowest level since November 2008. Thus, efforts by the government, Bank Indonesia and Financial Services Authority to prevent an economic crisis, which have been manifested in the implementation of 4 economic package programs, and aimed at improving the current account and stymie deeper depreciation of Rupiah, have yet to produce expected results.

In the meantime, amidst depreciating Rupiah, the Indonesia composite index has continued to decline. By November 2013, IDX had dropped to 4,256 compared with 4,510 in the previous month.  The decline in the composite index is largely attributable to the fall in prices of blue chips stocks.