After Islamic New Year celebrations, Indonesia’s financial markets reopened on Thursday (15/10). The sharp appreciation of the Indonesian rupiah on Thursday morning is remarkable. By 10:10 am local Jakarta time, the rupiah had appreciated 2.36 percent to IDR 13,295 per US dollar (Bloomberg Dollar Index) hence extending last week’s gains when Indonesia’s currency strengthened around 9 percent against the greenback. Emerging markets assets are still gaining on signs that the Federal Reserve will not raise US interest rates in the short-term.

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The central bank of Indonesia (Bank Indonesia) announced on Wednesday (07/10) that the country's foreign exchange reserves had fallen to USD $101.7 billion at the end of September 2015 (from USD $105.3 billion in the preceding month). The reserve assets declined due to the servicing of government foreign debt and rupiah exchange rate stabilization efforts. Until Friday (02/10), the rupiah was plagued by severe pressure caused by looming higher US interest rates.

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Investors' confidence in Indonesia's rupiah restored over the past three days after markets began to believe that the US Federal Reserve has little scope to raise its key Fed Fund Rate this year (due to weak US non-farm payrolls and US ISM non-manufacturing PMI). Bank Indonesia's role should also be highlighted. Indonesia's central bank intervened heavily (through currency swaps and by using its foreign exchange reserves) to stabilize and keep the currency from weakening toward and beyond the IDR 15,000 per US dollar level. This tells investors that Bank Indonesia will not allow a worse decline.

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In Indonesian media more and more (unofficial) information circulates about the third installment of the government's economic policy package. This third installment, which is expected to be unveiled next week by Indonesian President Joko Widodo, involves lowering prices of gas, diesel and electricity (for industries) to avert more layoffs in Indonesia's manufacturing industry. Meanwhile, the government may lower lending rates (by cutting unnecessary costs) in order to boost credit expansion in Southeast Asia's largest economy.

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After the government of Indonesia unveiled the second installment of its economic policy package on Tuesday (29/09), the central bank (Bank Indonesia) followed suit by releasing a rupiah exchange rate stabilization package on Wednesday (30/09). Bank Indonesia’s package has three main pillars: (1) safeguarding rupiah rate stability, (2) strengthening rupiah liquidity management, and (3) strengthening foreign exchange supply and demand management.

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The central bank of Indonesia (Bank Indonesia) is set to announce the second installment of a policy package that aims at raising onshore US dollar supplies (and liquidity). As the rupiah has been the second worst-performing Asian emerging market currency (after Malaysia’s ringgit), having depreciated 18.1 percent against the US dollar so far in 2015, Indonesian policymakers are anxious to prop up the ailing currency in order to safeguard the country’s financial stability. Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) stood at IDR 14,690 per US dollar on Friday (25/09), a 17-year low.

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The central bank of Indonesia (Bank Indonesia) estimates that inflation will ease below seven percent year-on-year (y/y) in September 2015 on the back of lower prices of raw foods and lower administered prices (including fuel and electricity) in the post the Ramadan and Idul Fitri period. Bank Indonesia Governor Agus Martowardojo said the central bank expects inflation at around 6.95 percent (y/y) in September.

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In line with expectation, the central bank of Indonesia (Bank Indonesia) decided to keep its key interest rate (BI rate) at 7.50 percent for a seven consecutive month in September’s Board of Governor’s meeting (17/09) as it aims to stabilize the rupiah amid global volatility caused by looming higher US interest rates and China’s hard landing (as well as yuan depreciation), while combating inflation which stood at 7.18 percent (y/y) in August. The overnight deposit facility rate and lending facility rate were left unchanged at 5.5 percent and 8 percent, respectively.

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With all eyes on the two-day policy meeting of the Federal Reserve, we could almost forget that the central bank of Indonesia (Bank Indonesia) will also hold its monthly policy meeting today. Similar to the topic discussed in the Federal Open Market Committee (FOMC) meeting (16-17 September), Bank Indonesia may consider raising its key interest rate (BI rate) as a Fed Fund Rate hike would trigger capital outflows, while Indonesia’s inflation rate remains high and the rupiah is fragile.

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For the second time, the central bank of Indonesia (Bank Indonesia) cut its 2016 forecast for economic growth in Indonesia, Southeast Asia’s largest economy. Due to persistent low commodity prices and weak export figures, the central bank now estimates that Indonesia’s economy will grow in the range of 5.2 - 5.6 percent (y/y) next year, down from its earlier outlook of 5.3 - 5.7 percent and the initial outlook of 5.4 - 5.8 percent.

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At the Indonesia Investment Summit 2015, organized in Jakarta on 15-16 January 2015, Bank Indonesia official Arief Mahmud presented several views of the central bank on the current Indonesian economy and the global and domestic challenges that it faces. As is widely known, Indonesia has been experiencing a process of slowing economic growth since 2011 due to sluggish global economic growth in combination with the rebalancing of the domestic economy. However, growth is expected to accelerate in 2015.

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In line with the performance of other Asian emerging currencies, Indonesia's rupiah exchange rate appreciated on Monday (12/01) as the fall in US wages (released late last week) caused speculation that the Federal Reserve will - for now - delay its plan to start raising US borrowing costs. Despite solid growing US non-farm payrolls in December 2014, US wages (average hourly earnings) fell the most in eight years. Indonesia’s rupiah appreciated 0.38 percent to IDR 12,599 per US dollar according to the Bloomberg Dollar Index.

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The central bank of Indonesia recently issued new regulations (Bank Indonesia Regulation No. 16/21/PBI/2014 and External Circular No. 16/24/DKEM) that aim to safeguard Indonesia’s financial fundamentals. These new regulations, which are an improvement of Bank Indonesia Regulation No. 16/20/PBI/2014 dated Oct. 28 2014, force Indonesian non-bank corporations to apply prudent fiscal management regarding foreign-denominated debt. Bank Indonesia felt these rules are needed as privately-held foreign debt rises continuously.

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The latest survey of Indonesia’s central bank indicates that consumer confidence fell in December 2014. The central bank’s Consumer Confidence Index fell 3.6 points to 116.5 in the last month of 2014 (a score above 100 signals optimism among consumers) due to the impact of higher subsidized fuel prices implemented in November 2014. This move triggered higher prices of products and services. The central bank’s Consumer Confidence Index is based on interviews with 4,600 households in 18 Indonesian cities.

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Indonesia’s inflation pace accelerated in December 2014, exceeding estimations of analysts and Indonesia’s central bank. December inflation, 2.46 percent (m/m) or 8.36 percent (y/y), accelerated due to the impact of higher subsidized fuel prices (introduced in November) and volatile food prices (fluctuating rice and chili prices at the year-end). Other factors that contributed to high inflation in 2014 were higher electricity tariffs for households and industries, the higher price of 12 kg LPG, and an airfare adjustment.

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Bank Indonesia (the central bank of Indonesia) and the Financial Services Authority (OJK) signed an agreement (the ASEAN Banking Integration Framework, abbreviated ABIF) with Malaysia’s central bank to support banking integration in the ASEAN region. The website of Bank Indonesia states that ABIF “provides an operating framework for ASEAN member states to implement principles and the integration process in the banking sector to support the ASEAN Economic Community (AEC) [which is to be implemented later this year]”.

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A team of the International Monetary Fund (IMF), led by David Cowen (advisor at the IMF’s Asia and Pacific Department), visited several Indonesian cities in the first three weeks of December 2014 to conduct research on the economic fundamentals of Southeast Asia’s largest economy. This research included the study of recent macroeconomic developments as well as the formulation of prognosis scenarios for the short and middle term. The IMF team held discussions with the government, Bank Indonesia, private entrepreneurs and scholars.

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External debt of Indonesia grew at a pace of 10.7 percent year-on-year (y/y) in October 2014, slightly slower than the 11.2 percentage point (y/y) growth pace in the previous month, according to a statement of Indonesia’s central bank (Bank Indonesia). Total outstanding external debt of Indonesia reached USD $294.5 billion in October (from USD $292.3 billion in the previous month). While growth of public sector external debt slowed in October, private sector external debt accelerated.

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Contrary to the previous trading day, most emerging Asian currencies strengthened against the US dollar on Tuesday (09/12) supported by the yen’s advance as falling oil prices dented risk appetite. Based on the Bloomberg Dollar Index, Indonesia’s rupiah appreciated 0.47 percent to IDR 12,331 per US dollar today. Despite local firms’ increased US dollar demand to settle debt before the year-end, market participants were happy to learn that Indonesia’s central bank is active in the foreign exchange market to guard the currency.

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Despite positive stock indices in the USA and Europe at the end of last week as well as mostly positive indices in Asia today (08/12), the benchmark stock index of Indonesia (Jakarta Composite Index, abbreviated IHSG) fell due to investors’ appetite for profit taking. Several matters made investors decide to sell their Indonesia shares, including the World Bank’s downward revision of Indonesia’s economic growth in 2015, Japan’s recession, weakening Chinese exports, and the sharply depreciating rupiah exchange rate.

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