Both domestic and foreign demand have slowed. Inflation has risen, at least temporarily, as fuel subsidies have been cut. The current account has continued to deteriorate, due to weak trading-partner growth, declining terms of trade and structural impediments in a number of export sectors. The currency has depreciated sharply, with the rupiah at its lowest level since March 2009.
The central bank should stand ready to raise interest rates further if signs emerge that high inflation is becoming entrenched, such as might be indicated by further substantial minimum wage increases. While low income earners were compensated for the cuts in fuel subsidies, further expanding the social safety net should be a priority. Measures also need to be taken to improve competitiveness, notably by investing in infrastructure.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.