Here's how fuel price revision will affect Indonesia's GDP

Growth to be shaved off by 0.3%.

According to DBS, following approval last week that subsidized fuel price increases are imminent, the government implemented the price changes over the weekend.

Here's more:

Prices for premium fuel have been raised to IDR 6,500/liter from IDR 4,500/liter while diesel prices have been raised to IDR 5,500/liter from IDR 4,500/liter.

On average, prices for subsidized fuel have increased by 33%. Stress on the budget have been building overthe last few months and revenue growth have slowed.

Moreover, the subsidy bill has been burgeoning with increased motorization. Reforms on fuel subsidies have been long overdue and before the recent hike in prices, subsidized fuel prices have been essentially unchanged since 2005.

Even after the recent adjustments, subsidized fuel prices are still about 30-40%below the market rate.

In order to reduce the impact on the poor, each low income household will receive IDR 150k per month for four months. The fuel price revision will have an impact on the growth and inflation forecasts.

We reiterate that GDP growth would be shaved off by around 0.3pct-pt this year and inflation is set to average 8% YoY in 2H13. Monetary tightening is also likely to be frontloaded.

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