Annual Ramadan Pilgrimage

INDONESIA - Report 21 Jul 2015 by Cyrillus Harinowo and Maria Kartika Purisari

Executive Summary

In June and July, the Indonesian economy started to move higher, driven principally by the season of the Muslim fasting month of Ramadan. At the same time, the more extensive implementation of government spending now taking place can also drive the economy faster. Ramadan has always been the pinnacle of Indonesian economic activity, more so than the Christmas season. With approximately 200 million people embracing the Muslim religion in the country, its rituals are always a determinant of economic seasonality.

One of the most important rituals of Indonesian Muslim society is the annual Ramadan Pilgrimage, a homecoming event that drives millions of people from major cities to their family homes in the inland or smaller cities. Therefore, managing inflation during this time as well as managing the traffic during this season is considered a measure of success for the government. This year, the Indonesian government can sleep better because the traffic jams that snarled for miles and miles in past years were not repeated. The use and completion of the new toll road made it so that the homecoming traffic could be managed better.

The annual homecoming pilgrimage is also a form of redistribution of income in the truest sense. People who travel back to their family homes carry a large amount of cash to spend with their extended families in the country. At the end of the season, the cash enters the banking system and becomes a source of new deposits in the inland regions. The new deposits will be re-lent to businesses in the regions, resulting in growth in the smaller cities and villages. On many occasions, the homecoming event has also led to the renovation and development of new homes, boosting the growth of the property business

On the external side, the Central Board of Statistics released the trade data for June, which showed another trade balance surplus. The trade surplus for the month was $477 million, significantly sizeable at the peak of the Ramadan season. With the first half 2015 trade balance in continuous surplus, there is a stronger likelihood that the trade balance in the coming months will remain in surplus through the end of the year. However, unlike the gain in the trade balance, the Indonesian currency rupiah suffered a weakening due to unfavorable global developments, especially in Greece and in China. In stabilizing the currency, the Indonesian Central Bank spent some money to intervene, leading to a small decline in Indonesia’s foreign exchange reserves, which decreased to $108 billion at the end of June 2015.
In the meantime, June 2015 was also marked by relatively mild inflation, at 0.54%, considering the month is near the peak of Ramadan. Yearly inflation in June was 7.26%. With that inflation and the trade data, Bank Indonesia decided to keep the interest rate constant at 7.5% at its policy meeting in July 2015

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