Easing Tensions in Ukraine Support the Indonesian Rupiah Exchange Rate
The Indonesian rupiah exchange rate appreciated 0.14 percent to IDR 11,581 per US dollar on Wednesday based on the Bloomberg Dollar Index. The currency is now at its strongest level since 25 November 2013 as it regained trust of international investors. In 2013, the rupiah weakened sharply after speculation emerged that the Federal Reserve would scale back its quantitative easing program. In combination with the country's record high current account deficit and high inflation it led to large capital outflows from Southeast Asia's largest economy.
The context is different today. There is more clarity about the ending of the US quantitative easing program as the Federal Reserve announced to start to taper in December 2013. For the investor community, such clarity is highly important. Moreover, the economy of Indonesia looks in much better shape now. The current account deficit has eased from USD $9.9 billion (4.4 percent of GDP) in the second quarter of 2013 to USD $4.0 (1.98 percent of GDP) in the fourth quarter of 2013. Although January 2014 showed another trade deficit, the central bank of Indonesia is positive that the current account balance will be kept at a sustainable level of below three percent of GDP in 2014.
Meanwhile, inflation, which accelerated to nearly nine percent last year after the government increased prices of subsidized fuels, eased from 8.22 percent in January 2014 (year-on-year) to 7.75 percent in February 2014 (yoy). As a result, capital inflows have returned. In 2014, the rupiah is one of the best performing currencies against the US dollar, appreciating around 4.6 percent (year-to-date).
Inflation in Indonesia:
| Month | Monthly Growth 2013 |
Monthly Growth 2014 |
| January | 1.03% | 1.07% |
| February | 0.75% | 0.26% |
| March | 0.63% | |
| April | -0.10% | |
| May | -0.03% | |
| June | 1.03% | |
| July | 3.29% | |
| August | 1.12% | |
| September | -0.35% | |
| October | 0.09% | |
| November | 0.12% | |
| December | 0.55% | |
| Total | 8.38% | 1.33% |
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | |
| Inflation (annual percent change) |
9.8 | 4.8 | 5.1 | 5.4 | 4.3 | 8.4 |
Source: Statistics Indonesia
As tensions in the Ukraine have eased after Russian President Putin said on Tuesday (04/03) that he saw no immediate need to invade eastern Ukraine, the rupiah is expected to continue its appreciating trend against the US dollar. The political tensions in the Ukraine previously resulted in high demand for safe havens, such as the US dollar, gold and yen. Today, the US dollar tended to depreciate against most currencies in the Asia Pacific.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.57 percent on Wednesday to IDR 11,580 per US dollar.
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