January 2014 Tapering Has Euphoric Effect on Global Stock Markets
On Wednesday (18/12), the Federal Reserve announced to slightly scale back its quantitative easing program starting from January 2014. The reduction of the bond-buying program involves USD $5 billion of mortgage-backed securities and USD $5 billion of US treasury securities. Thus, the Federal Reserve will purchase a total of USD $75 billion worth of bonds per month instead of the current pace of USD $85 billion. For the moment, this policy change has an euphoric effect on global stock markets.
Moreover, the Federal Reserve announced to keep its benchmark interest rate exceptionally low until the US unemployment rate declines to around 6.5 percent or the inflation rate exceeds 2.5 percent a year. Due to the low interest rate environment of the USA, capital outflows from Indonesia's capital markets will not emerge yet. In fact, as the current account balance is improving, funds are flowing back in.
In the first session on Thursday (19/12), Indonesia's benchmark stock index rose 0.99 percent to 4,237.97 points. All sectoral indices were up.
The Indonesia Rupiah Exchange Rate
In the Bloomberg Dollar Index, the Indonesia rupiah exchange rate showed a volatile performance on the first trading morning after the Fed's tapering was announced. The currency first weakened to IDR 12,208 per US dollar, then appreciated to IDR 12,088 and then fell back to IDR 12,206 per US dollar, which is approximately the currency's lowest level since December 2008.
Bank Indonesia's Jakarta Interbank Spot Dollar Rate (JISDOR) fell 0.33 percent to IDR 12,191 per US dollar on Thursday (19/12). Since the start of 2013, the currency has depreciated 26.1 percent against the US dollar.
| Source: Bank Indonesia