Rupiah Exchange Rate Depreciates as Investors Await Election Result

Although most reliable quick count results mention market favourite Joko Widodo (Jokowi) as winner of the election, market participants remain cautious as Indonesian politics are not free from corruption and money-politics. Last week, Indonesian markets surged on speculation that Jokowi would win the election. Thereafter, euphoria has declined, but we still expect to see the markets rise in case Jokowi is announced as the winner of the election (although the official result of the KPU can still be disputed by rival candidate Prabowo Subianto, which means that it will be handled by the country’s Constitutional Court and will take up to the end of August 2014 before a definite decision has been made). In case of a Prabowo win, we expect to see capital outflows.

However, the rupiah has also been under pressure today due to higher US dollar demand. Traditionally, the months of August and September show a peak in US dollar demand but as market participants consider the US dollar relatively cheap at the current level, they have already started to buy US dollars.

Market participants are also concerned about Indonesia’s current account deficit. According to Bank Indonesia, the deficit will widen in the second quarter from the USD $4.2 billion (2.06 percent of GDP) that was recorded in the first quarter of 2014.

International concerns include Israeli aggression in Palestine, continued tensions between Russia and Ukraine as well as geopolitical tensions in Iraq.

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) stayed at the level of IDR 11,627 per US dollar on Monday (14/07).

| Source: Bank Indonesia

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