Ahead of the new year, the Indonesia rupiah exchange rate continues its downward trend on Monday (30/12). Bank Indonesia's Jakarta Interbank Spot Dollar Rate (JISDOR) fell to IDR 12,270 per US dollar from IDR 12,260 on the previous trading day. Due to the improving US economy, the US dollar keeps appreciating against the majority of emerging currencies. At most local Indonesian banks, the rupiah is traded significantly above the psychological level of IDR 12,000 per US dollar.

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The Indonesia rupiah exchange rate continued its downward trend on Monday (23/12). Both Bank Indonesia's Jakarta Interbank Spot Dollar Rate (JISDOR) and Bloomberg's Dollar Index showed a depreciating rupiah. The JISDOR, which was launched by Bank Indonesia in May to manage exchange rate fluctuations, fell 0.01 percent to IDR 12,246 per US dollar, while the Bloomberg Dollar Index indicated a 0.29 percent decline of the rupiah to IDR 12,250 per US dollar at 14:10:09 afternoon, local Jakarta time.

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Deputy Trade Minister Bayu Krisnamurthi said that the Indonesian government is preparing two strategic steps to anticipate the negative impact of the winding down of the Federal Reserve's quantitative easing program. In January 2014, the Fed's bond-buying program will be reduced from USD $85 billion to USD $75 billion per month. The two strategic steps, which will enhance financial stability in Southeast Asia's largest economy, involve the curtailing of Indonesia's current account deficit and high inflation.

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The central bank of the United States, the Federal Reserve (FED), announced that it will start winding down its quantitative easing program in January 2014. Currently, the Fed purchases USD $85 billion worth of bonds per month but this amount will be reduced to USD $75 billion next month. The Fed came to this decision as prospects of the US labor market have shown a marked improvement, while economic growth is expected to accelerate to between 2.8 and 3.2 percent in 2014 and between 3.0 to 3.4 percent in 2015.

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The World Bank released the December edition of its Indonesia economic quarterly report. The title of the report “Slower Growth; High Risks” leaves little to the imagination. The World Bank expects Indonesia’s economic growth to slow to 5.3 percent in 2014 amid external shocks, most notably the Federal Reserve 'tapering'. The report states that “while policymakers in Indonesia have taken steps to encourage near-term macroeconomic stability, further structural reforms are needed to support export performance and encourage long-term faster growth.”

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In Bank Indonesia's Board of Governors' meeting - held on Thursday (12/12) - it was decided to keep the country's benchmark interest rate (BI rate) at 7.50 percent. Executive Director of Bank Indonesia's Communication Department Difi A. Johansyah said that the current rate of 7.50 percent is in line with the institution's inflation target of 4.5 percent (plus or minus one percent). The lending facility and deposite facility (Fasbi) rates are also maintained at 7.5 percent and 5.75 percent respectively.

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The Indonesian rupiah exchange rate extended its losing streak on Thursday (28/11). Bank Indonesia's mid rate plunged 0.99 percent to IDR 11,930 per US dollar, thus moving closer toward the psychological level of 12,000. Various local banks have already set the value of the currency above the 12,000 level on the spot market. It is the weakest level of the rupiah since 2009. Since Monday (25/11), the mid rate has depreciated 1.77 percent. This year so far, the currency has fallen 23.37 percent, thus becoming the worst performing Asian currency.

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The Indonesian rupiah exchange rate maintained its downward trend on Wednesday (27/11). Bank Indonesia's mid rate depreciated 0.41 percent to IDR 11,813 per US dollar. Investors remain concerned about Indonesia's wide current account deficit. Today, Finance Minister Chatib Basri said that the current account deficit will be around USD $30 billion by the end of 2013, significantly up from USD $24 billion at the end of 2012. In the third quarter of 2013, the current account deficit was USD $8.4 billion (3.8 percent of Indonesia's GDP).

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On Tuesday (26/11), Bank Indonesia's mid rate depreciated 0.37 percent to IDR 11,765 per US dollar, which is the lowest level the currency has touched since March 2009. Main reason for today's decline is the government's US dollar-denominated bond auction yesterday (25/11) that fell USD $450 million short of its target. The bond issuance was negatively impacted by investors' concern about the looming scaling back of the Federal Reserve's quantitative easing program as US economic data improve.

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The Indonesian rupiah continued its downward spiral on Monday morning (25/11). The central bank's mid rate fell 0.14 percent to IDR 11,722 per US dollar. Last week, the rupiah fell amid negative market sentiments brought on by the result of the Federal Reserve's FOMC meeting. The result seems to indicate that it will not take long before the quantitative easing program will be wound down. Contrary to the Australian dollar as well as the Indian rupee, news about the forthcoming financial reformation in China is unable to the support the rupiah.

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The Jakarta Globe reported that Schroders Indonesia will increase its Indonesian assets by 5 to 10 percent in 2014 as the company expects the country's benchmark stock index (IHSG) to rise amid the legislative and presidential elections that are scheduled for April and July 2014. Schroders is optimistic that growth in Southeast Asia's largest economy will accelerate after the hiccup in 2013 when large capital outflows emerged amid international and domestic troubles. Indonesia's GDP growth is estimated to have slowed to 5.7 percent in 2013.

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Today (27/01), Indonesia's benchmark stock index (the Jakarta Composite Index, abbreviated IHSG) fell 2.58 percent to 4,322.78 points. This sharp decline can only be explained by profit taking amid market uncertainty. As I have reported before, the IHSG is highly susceptible to profit taking when negative sentiments arise in the market. Factors that accounted for these sentiments were the continued depreciation of the rupiah exchange rate and falling Asian stock markets (that were impacted by Wall Street's negative ending last week).

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In the Bloomberg Dollar Index, Indonesia's rupiah exchange rate depreciated 0.47 percent to IDR 12,238 per US dollar on Monday (27/01). The decline of the rupiah was in line with today's trend of weakening Asia Pacific currencies (against the US dollar). Meanwhile, the central bank's mid rate (the Jakarta Interbank Spot Dollar Rate or JISDOR) depreciated 0.17 percent to IDR 12,198 per US dollar. Market participants are concerned about Indonesia's January 2014 inflation and further Federal Reserve tapering.

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In the fourth week of January, Bank Indonesia's rupiah exchange rate (the Jakarta Interbank Spot Dollar Rate or JISDOR) depreciated 0.41 percent against the US dollar. This weakening trend of the rupiah was caused by various factors. Most importantly, the US dollar has been gaining strength against emerging currencies, including Indonesia, as speculation emerged that the Federal Reserve will curtail its massive monthly bond-buying program (quantitative easing) by more than just USD $10 billion per month.

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The Indonesia rupiah exchange rate depreciated 0.13 percent to IDR 12,181 per US dollar based on the Bloomberg Dollar Index on Friday (24/01). Asian currencies felt the impact of a contraction of Chinese manufacturing as HSBC’s preliminary Purchasing Managers’ Index slipped to 49.6 in January 2014. Meanwhile, US existing homes sales in December were best since 2006 while US jobless claims were near a six-week low. These data fuel speculation that the Fed will continue to wind down its bond-buying program.

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On Thursday's trading day (16/01), Indonesia's benchmark stock index (Jakarta Composite Index) fell victim to profit taking after two days of sharp gains (although the index did not came close to its gap at 4,393-4,398 points). The index was also pulled down due to the World Bank's pessimistic forecast for growth of Indonesia's economy as well as today's mixed Asian stock indices. Lastly, the continued Indonesia rupiah exchange rate depreciation contributed to negative market sentiments.

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As expected, the Jakarta Composite Index (abbreviated IHSG) continued its downward trend amid falling global indices. From the start of Tuesday's trading day (07/01), the IHSG had to face pressures resulting in foreign net selling. Apart from the weakening rupiah exchange rate, negative market sentiments were caused by the Goldman Sachs Group and JP Morgan Chase & Co that both downgraded emerging market economies. This led to a correction on Asian stock markets.

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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.

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The announcement that the Federal Reserve (FED) will start its quantitative easing tapering in January 2014, while keeping interest rates low, made stock indices in Asia rise, including Indonesia's benchmark stock index (IHSG), although mining and property stocks were able to limit today's gain. The IHSG rose 0.85 percent to 4,231.98 points on Thursday (19/12). The Indonesia rupiah exchange rate (IDR), however, was down as future tighter US dollar supplies causes market participants to buy US dollar now.

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The Indonesia rupiah exchange rate continued its downward trend on Wednesday (18/12). Both Bank Indonesia's Jakarta Interbank Spot Dollar Rate (JISDOR) and Bloomberg Dollar Index indicated a depreciating rupiah against the US dollar. Bank Indonesia's JISDOR was set at IDR 12,151 per US dollar, a 0.39 percent fall from yesterday (17/12), while in the Bloomberg Dollar Index the currency depreciated 0.35 percent to IDR 12,168 per US dollar at 16:55 in the afternoon, local Jakarta time.

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