A.Money Supply

In line with weakening economy growth in the domestic economy, money supply growth has become more sluggish. In December 2012, M2 growth decreased to 14.9% (YoY) compared with 16.4% (YoY), which was registered in December 2011. By the same token, MI growth also decreased to 16.4 %(YoY) in December 2012, smaller than 19.4% (YoY) in December 2011. The decrease in the growth of M2 and MI is attributable to the decrease in Rupiah demand deposits, caused by slower credit expansion as a result of weakening economic growth from 6.5% (2011) to 6.23% (2012).

 

B.Inflation

Inflation rate  year on year (February 2013 to February 2012)  is 5.31%,  which is a significant increase from 3.56%, registered  in   the same month in the  previous year. The main factors contributing to inflation rate in February 2013 (YoY) include volatile (11.02%), administered price (2.91 %), and core component (9%).

Inflation in February 2013 is attributable to general inflation (0.75%), core inflation (0.30%), administered price (0.72%), and volatile (2.32%). The high level of administered prices attests to the impact of expectation of an increase in electricity price. To that end, inflation level for the calendar year (January – February 2013) was 1.79%, while core inflation stood at 0.66%.

Three factors explain the level of inflation in February 2013. First, the increase in prices of basic necessities that include food items due to bad weather conditions   and floods that affected many areas in Indonesia.  Bad weather conditions and floods which  have affected several regions in Indonesia have hampered distribution and transportation of goods which are needed on daily basis by the population.

Government policies that involved an increase in user charges for electricity users and provincial minimum wage which took effect in January 2013, is also another important contribution to inflation level in February 2013.   

The third factor is the adverse impact of the government policy that imposed restrictions in importing horticultural commodities, which induced an increase the prices thereof. The policy got into effect on January 2013. The policies were stipulated in the provisions of the Ministry of Agriculture regulation No.60/2012 on the recommendations on the importation of Horticultural commodities (RIPH), which was signed on 24 September 2012 and the Ministry of Trade Regulation No.  60/2012 on Requirements for the Importation of Horticultural Commodities, which was signed on  21 September 2012. The two regulations impose restrictions on distribution of thirteen imported horticultural products in the domestic market during January – June 2013 period. The commodities listed include irish potatoes, cabbage, carrots, pepper, pineapples, durian, bananas, melon, papaya, mangoes, chrysanthemum, orchidaceous, and heliconia flowers.

Based on category of expenditure, inflation in February 2013 is attributable to an increase in indices of several categories of expenditures, which are foodstuff (2.08%), also housing, water, electricity, gas and fuels (0.82%). This is followed by the health (0.56%); prepared food, beverages, cigarette and tobacco (0.47%); education, recreation and sports (0.19%); also transportation, communications and financial services (0.08%). Meanwhile, the clothing was the only expenditure category which registered a decrease in its price index by 0.59% in February 2013.

Meanwhile, a comparison of inflation levels in 66 cities shows that 60 cities registered inflation while 6 experienced deflation in February 2013.  Jayapura registered the highest inflation (3.15%), and Sibolga recorded the lowest (0.12%). As regards deflation, Ambon recorded the highest figure (2.29%,), while Ambon posted the lowest (0.01%).

Breakdown of inflation by Island shows that with respect to Sumatera Island, all the 16 cities covered registered inflation in February 2013.  Lhokseumawe registered the highest inflation (1.78%), and the lowest figure was recorded in Sibolga (0.12%). Meanwhile, all cities covered on Java Island (23 in all), registered inflation in February 2013. Cilegon registered the highest inflation (1.23%),while Tegal posted the lowest figure (0.23%). For other cities outside Java and Sumatera Islands, 21  out of 27 cities  registered inflation in February 2013, and the rest posted deflation.  Jayapura registered the highest inflation (3.15%), while Mamuju recorded the lowest (0.25%). As regards deflation, Ambon posted the highest figure (2.29%), while Sampit recorded the lowest figure (0.01%).

 

C.Interest Rate

Bank Indonesia (BI) decided to maintain interest reference rate (BI Rate) in March 2013 at 5.75%. This means that Bank Indonesia has not changed the BI Rate since February 2012, which is over a period of 12 months.  BI considers the interest rate position to be in line with the projected inflation target band of 4.5% ± 1 for 2013-2014 periods. The last time Bank Indonesia changed Bank Indonesia rate was on 9 Febuary 2012, which entailed a decrease of BI rate from 6% to 5.75%.

As is the case with BI rate, the Indonesian Deposit Insurance Agency (LPS) has also maintained the reference deposit guarantee rate.  LPS considers the deposit guarantee rate to be in line with prevailing conditions in the economy and banking sector  hence has decided to maintain the deposit insurance rate for Rupiah denominated deposits in general commercial banks at 5.50%  in February 2013. Meanwhile, in February 2013,   BI raised the interest rate on Bank Indonesia Certificates (SBI), 9 months maturity series, from  4,84% to 4.86%.

 

D.Foreign Reserves

Indonesia foreign reserve position shows a drastic decrease at the start of 2013. By the end of January 2013, Indonesian foreign reserves decreased by USD 4 Billion from USD 112 Billion late Desember 2012 to USD 108.78 Billion.  The drastic decrease registered at the beginning of 2013, is attributable to the demand for foreign currency to meet a surge in domestic demand in the economy. Foreign reserve position by late January 2013 was equivalent to 5.9 months of imports and government’s external debt services.

 

 

E.Exchange Rate and Share Prices

An observation of the point by point movement of Rupiah against USD shows that the exchange rate in fact strengthened from IDR 9698 per USD at the end of the previous month to IDR 9667 per USD in February 2013. However, overall, the movement of Rupiah   against USD during February 2012 – February 2013 shows the domestic currency has experienced depreciation. The depreciation of Rupiah is attributable to the high demand for US dollars in the domestic economy which is not easily met by limited domestic supply.  This dynamic has created imbalance in the domestic foreign exchange market. Besides, pressures that are emanating from the performance of the  current account deficit caused by limited growth of exports and high import growth induced by strong domestic demand, have also contributed to the  depreciation of Rupiah.

Morever, the movement of Rupiah has been weighed down by  negative sentiments emanating from  external factors. Fears about the potential impact of US federal fiscal policy tightening, the continuation of economic stimulus by the Federal Reserve,   and high uncertainty that surrounds prospects for resolving the crisis in  Europe and the still anemic macroeconomic conditions in Europe, have all undermined quick recovery of the global economy. In addition, low international commodity prices  which constitute major Indonesian exports have all contributed to undermining  the value of  Indonesian Rupiah.

Meanwhile, the composite share price index (IHSG) in February 2013 shows an upward trend compared with the position at the beginning of the year.  By late February 2013, IHSG movement hovered around 4795, which was an indication that it had strengthened compared with 4453 registered in the previous month, or a growth of 7.7%.