Indonesian Rupiah Exchange Rate Up Ahead of Parliamentary Election

First of all, the market was content with the decision of Indonesia's central bank (Bank Indonesia) to keep its benchmark interest rate (BI Rate) at 7.50 percent during Tuesday's Board of Governors' Meeting. This level is considered in accordance with current developments within the country's domestic economy as inflation and the current account deficit are easing.

Indonesia's foreign exchange reserves, despite having declined slightly in March 2014 due to government debt repayments, are at a safe level (USD $102.6 billion) and expected to increase again in April.

Thirdly, optimism one day ahead of the legislative election boosts both Indonesia's currency and stock index. Market participants are expecting the PDI-P (the main opposition party) to win this election. A clear victory would pave the way for highly popular Governor of Jakarta Joko Widodo (better known as Jokowi) to become the next Indonesian president. Such a victory would also imply increased political certainty and thus more foreign investment in Southeast Asia's largest economy. However, inflows in the capital markets of Indonesia can be short-lived as the 'Jokowi factor' is more based on hope than on tested policy potential.

Lastly, international investors are in anticipation of the Federal Open Market Committee (FOMC) minutes, which are expected to be released on Wednesday (09/04). It will be interesting to see whether the minutes are in line with Fed Chair Janet Yellen's comments last month. On 19 March, Yellen stated that the quantitative easing program could finish by the end of 2014, followed by interest rates hikes. However, on 31 March 2014, Yellen said that the USA still needs the central bank's unprecedented monetary accommodation to curb unemployment and boost the US economy. This caused speculation that US interest rates may not rise as quickly as previously estimated.

However, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.24 percent to IDR 11,309 per US dollar on Tuesday (08/04):

| Source: Bank Indonesia

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