Indonesia’s rupiah exchange rate started the week on a firm tone as the US dollar weakened amid uncertainty over the timing of higher US interest rates. Contrary to initial expectation, the latest Federal Reserve meeting (held on 17-18 March) did not indicate that there will be a quick interest rate hike in the world’s largest economy hence boosting appetite for emerging market assets. In addition, the Indonesian government and central bank (Bank Indonesia) pledged to safeguard rupiah stability.

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On 22 March 2015, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve economic matters such as an analysis of the rupiah performance, an analysis of why Bank Indonesia kept its key interest rate at 7.50 percent, a World Bank update on Indonesia, the trade balance, Islamic finance, reforms, and more.

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Apparently, the Federal Reserve’s message that it would still wait before raising US interest rates only implied a brief weakening of the US dollar against emerging Asian currencies. On Friday (20/03), the Indonesian rupiah depreciated 0.51 percent to IDR 13,124 per US dollar according to the Bloomberg Dollar Index. Current high volatility is also the result of different policies being executed by different central banks. Whereas the US Federal Reserve aims to further tighten monetary policy, central banks in Japan and Europe do the opposite.

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Indonesian stocks and the rupiah exchange rate strengthened rapidly on Thursday (19/03) after the Federal Reserve refrained from raising its key interest rate at the two-day FOMC meeting that ended on Wednesday (18/03) as US inflation is still tame while US economic growth somewhat moderated. The US central bank signaled that it is not in a hurry to raise interest rates, but, on the other hand, it also dropped the word ‘patient’ from its guidance on interest rates (which have been at historic lows since late 2008).

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The central bank of Indonesia (Bank Indonesia) decided to maintain its benchmark interest rate at 7.50 percent at today’s Board of Governors’ Meeting. The overnight deposit facility rate and lending facility rate were maintained at 5.50 percent and 8.00 percent, respectively. Bank Indonesia considers that the current interest rate environment is in line with its target to push inflation within its target range of 3.0-5.0 percent (y/y) in 2015 and to curb the country’s current account deficit to a range of 2.5-3.0 percent of gross domestic product (GDP).

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Statistics Indonesia (BPS) announced on Monday (16/03) that Indonesia posted a USD $738.3 million trade surplus in February 2015, the country’s third consecutive monthly trade surplus, and higher than the forecast of Indonesia’s central bank (Bank Indonesia) and a Reuters poll which both estimated a surplus in the range of USD $500 and $520 million. The surplus was also larger than the USD $709.4 million trade surplus posted in the first month of 2015. The February surplus was particularly the result of declining imports.

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After a series of good economic data (particularly US employment) the market expects that the Federal Reserve will raise its key interest rate in the second or third quarter of 2015 thus providing ammunition for bullish US dollar momentum (hovering at an 11-years high). Due to the expected higher yield in the USA, capital is flowing back to the world’s largest economy at the expense of emerging market currencies, including the Indonesian rupiah exchange rate which has depreciated 6 percent against the US dollar this year so far.

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On 15 March 2015, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve economic matters such as an analysis of the rupiah performance, a forecast on the February 2015 trade balance, earnings in Indonesia’s coal mining industry, the processed food & beverage industry, the Trans-Sumatra toll road, and more.

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Turnover in Indonesia’s processed food and beverage industry is expected to grow 4 to 5 percent year-on-year (y/y) in the first quarter of 2015 from the same period last year. Adhi Lukman, General Chairman of the Indonesian Food and Beverage Association (GAPMMI), said that factors have been hampering this industry are the winding down of fuel subsidies, the country’s sluggish export sector, the industry’s dependence on imports of raw materials, people’s weakening purchasing power amid low commodity prices, and a weak rupiah.

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Regarding Indonesia, the spotlight remains sharply focused on the drastically depreciating rupiah exchange rate. As speculation is growing that the US Federal Reserve will soon raise its interest rate regime, emerging market assets (both currencies and stocks) tend to weaken. However, although most Asian emerging currencies are weakening against the US dollar, the rupiah is particularly vulnerable as Indonesia is plagued by a wide current account deficit, which informs investors that the country is relying on foreign capital inflows.

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The benchmark stock index of Indonesia (Jakarta Composite Index, abbreviated IHSG) closed 1.12 percent higher on Wednesday (17/09) supported by Tuesday’s positive stock indices on Wall Street as well as speculation that the US Federal Reserve will not raise its key interest rate yet. Today (17/09), the Federal Reserve will conclude its Federal Open Market Committee (FOMC) meeting. Lastly, after weak economic data, it was reported that China’s central bank (PBOC) injected USD $82 billion into the country's five largest banks.

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Stock markets in the Asia Pacific were down on Tuesday (16/09) as investors are awaiting the results of the Federal Open Market Committee (FOMC) today (Wednesday 17/09) and are focused on the condition of the Chinese economy. Moreover, investors were disappointed to hear that next Indonesian President Joko Widodo (Jokowi) will appoint 16 party politicians to lead ministries in his cabinet (which is in contrast with his initial plan to appoint technocrats). Lastly, the Indonesian rupiah exchange continued to depreciate.

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The Indonesian rupiah exchange rate depreciated 0.54 percent to IDR 11,822 per US dollar in the past week (based on the Bloomberg Dollar Index). Several internal and external factors influenced the currency’s performance over the past week, such as increased US dollar demand from local Indonesian companies, Bank Indonesia’s decision to leave the BI rate unchanged and the improving US economy. Lastly, the structural current account deficit (triggered by expensive oil imports) remains a problem for investors.

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The central bank of Indonesia (Bank Indonesia) kept its key interest rate (BI rate) at 7.50 percent for the tenth consecutive month as inflation is under control and well within the year-end target of the central bank (3.5-5.5 percent). The lending facility and deposit facility were kept at 7.50 percent and 5.75 percent, respectively, at Thursday’s Board of Governor’s Meeting (11/09). The central bank also expects that the current interest rate environment is capable of curbing the country’s wide current account deficit.

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The benchmark stock index of Indonesia (Jakarta Composite Index, abbreviated IHSG) declined 0.92 percent to 5,136.86 points on the last trading day of the week. Seven of the ten sectorial indices fell, led by the finance sector (-1.66 percent), followed by consumer goods (-1.50 percent) and manufacturing (-1.34 percent). The main reason for this poor performance is that investors are again looking at the true fundamentals of the Indonesian economy instead of optimism about Joko Widodo becoming Indonesia’s seventh president.

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The benchmark stock index of Indonesia (Jakarta Composite Index, abbreviated IHSG) rose 0.37 percent to 5,184.48 on Thursday’s trading day (28/08) on increased expectation that the transition from the Susilo Bambang Yudhoyono (SBY) government to the Joko “Jokowi” Widodo government will be smooth and efficient evidenced by the pair's meeting in Bali to discuss various matters regarding the transfer of power. For investors, this meeting led to increased optimism. Stocks in the property and miscellaneous sectors led the gain.

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The benchmark stock index of Indonesia (Jakarta Composite Index, abbreviated IHSG) fell 0.14 percent to 5,198.90 points on the last trading day of the week, the first day of decline in five trading days, as investors engaged in profit taking after Indonesia’s Constitutional Court confirmed the official election result of the General Elections Commission (KPU) that announced Joko Widodo as winner of the July 2014 presidential election. Next week investors may continue profit taking as the index is still overbought.

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Indonesia’s benchmark stock index (known as the Jakarta Composite Index or IHSG) climbed 0.31 percent to 5,206.14 points on Thursday's trading (21/08) on speculation that Indonesia’s Constitutional Court will reject defeated presidential candidate Prabowo Subianto’s claim that the official July 2014 presidential result is illegal due to massive violations. Although the Court is still reading out the verdict, it has already indicated that evidence for violations is incomplete and unconvincing. Therefore, a Court decision that calls for revoting has become unlikely.

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The central bank of Indonesia (Bank Indonesia) announced two important matters on Thursday (14/08). Firstly, the institution decided to maintain the benchmark interest rate (BI rate) at 7.50 percent, the overnight deposit facility rate (Fasbi) at 5.75 percent, and the lending facility rate at 7.50 percent. Secondly, it announced that Indonesia’s current account deficit widened to USD $9.1 billion, or, 4.27 percent of the country's gross domestic product (GDP) in the second quarter of 2014, a widening that is larger than initially forecast.

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The Indonesian rupiah exchange rate had appreciated 0.38 percent to IDR 11,758 per US dollar on Monday (04/08) according to the Bloomberg Dollar Index by 15:40 pm local Jakarta time. Although the rupiah had appreciated to a stronger level (IDR 11,713) earlier on Monday, the currency slightly rebounded after Statistics Indonesia announced that the country posted a USD $300 million trade deficit in June 2014, thereby placing more pressure on the nation’s current account balance.

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