As voting results are being collected chances are growing that the United Kingdom will leave the European Union (the so-called "Brexit"). After results from 314 of a total of 382 UK voting districts have been collected, the leave camp leads by 3.8 percent. As a result the pound sterling is on track for its largest-ever one-day fall. Meanwhile, stock markets in Asia show deep losses, led by Japan's Nikkei 225 index and Hong Kong's Hang Seng Index (both tumbling more than three percent).

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Indonesian credit rating agency Pefindo (Pemeringkat Efek Indonesia) says the value of issued debt paper in Indonesia may reach IDR 90 trillion (approx. USD $6.8 billion), up 34 percent from the IDR 67 trillion worth of debt paper that was issued in Indonesia last year. Debt paper involves bonds, sukuk (Islamic bonds), and medium term notes. So far this year, Pefindo has been tasked to rate up to IDR 44.1 trillion worth of debt paper, while debt paper that has been issued up to May totaled IDR 25 trillion (approx. USD $1.9 billion).

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In line with other Asian assets, Indonesian stocks and the rupiah strengthened on Monday (20/06) as falling odds of a "Brexit" boosts risk appetite. Voters in the United Kingdom will decide in a referendum on Thursday (23/06) whether or not to remain part of the European Union (EU). An exit of the UK from the EU (the so-called "Brexit") is expected to cause a major global shock and flight to safety. The latest opinion polls, however, indicate a growing chance that the UK will remain part of the UK, hence causing a sigh of relief on global markets. Meanwhile, oil prices were up on the weakening US dollar.

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It was a bad start of the new trading week. Stocks in Asia were deep in the red due to risk aversion, falling the most in four weeks amid concern about the "Brexit" referendum, uncertainty before this week's central bank meetings in the USA and Japan, falling crude oil prices, and the worst mass shooting in modern US history. Indonesia was among the affected markets; the benchmark Jakarta Composite Index fell 0.84 percent to 4,807.23 on Monday (13/06), while the rupiah only depreciated slightly to IDR 13,298 per US dollar (Bloomberg Dollar Index).

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The foreign exchange reserves of Indonesia fell USD $4.1 billion to USD $103.6 billion in May 2016 because part of the assets were used for foreign debt repayments while Indonesia's central bank (Bank Indonesia) used part to support the rupiah that had come under severe pressure in the last two weeks of May due to growing speculation about a sooner-than-expected US interest rate hike and sliding oil prices (these sentiments would reverse in the first week of June, giving rise to a strengthening rupiah).

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In line with other markets in Asia, Indonesian stocks and the rupiah continued to rally on Tuesday (07/06) supported by the cautious words of Federal Reserve Chair Janet Yellen in a speech on Monday. Meanwhile, higher commodity prices boost the outlook for those commodity-exporting economies (including Indonesia). Indonesia's benchmark Jakarta Composite Index rose 0.78 percent to 4,933.99 points, while the Indonesian rupiah appreciated 0.80 percent to IDR 13,263 per US dollar (Bloomberg Dollar Index).

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Changing perceptions about US monetary policy have a big impact on Indonesian stocks and - especially - the rupiah, today. According to the Bloomberg Dollar Index, the Indonesian rupiah had appreciated 1.30 percent to IDR 13,418 per US dollar by 12:55 pm local Jakarta time. Meanwhile, the Jakarta Composite index rose 0.52 percent to 4,879.06 after the first trading session on Monday (06/06). What caused this performance? Well, the release of the weakest US jobs data since 2010.

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The Indonesian rupiah experienced a volatile day on Thursday (02/06), touching a four-month low in the morning after Indonesia failed to get investment grade status (yet) from global credit rating agency Standard & Poor's (S&P). However, at the end of the trading day the rupiah had appreciated 0.13 percent to IDR 13,643 per US dollar (Bloomberg Dollar Index). Most emerging Asian currencies appreciated against the US dollar today amid uncertainty about an imminent Fed Funds Rate hike.

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For sure Indonesia's financial system will be affected by the Federal Reserve's decision to implement another interest rate hike, and especially emerging market currencies - including the rupiah - are vulnerable to further monetary tightening in the world's top economy. Most analysts now believe a Fed Funds Rate (FFR) hike could occur in July 2016. In previous rounds of US monetary tightening (QE tapering and the December 2015 FFR hike) we witnessed large capital outflows from Indonesia. What will be the impact of another US interest rate hike on Indonesia?

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The Indonesian rupiah was under pressure on Tuesday (24/05). Based on the Bloomberg Dollar Index, the rupiah depreciated 0.47 percent to IDR 13,638 per US dollar, the weakest level since early February 2016. However, the Indonesian rupiah is not the only emerging market currency in Asia that was under pressure today. Meanwhile, Asia's emerging market stocks also declined. Negative market sentiments are caused by growing speculation about a sooner-than-expected interest rate hike in the USA as well as sliding oil prices.

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ICRA Indonesia, an independent credit rating agency and subsidiary of ICRA Ltd. (associate of Moody's Investors Service), publishes a monthly newsletter which provides an update on the financial and economic developments in Indonesia of the last month. In the April 2014 edition, a number of important topics that are monitored include Indonesia's inflation rate, the trade balance, the BI rate, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:

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While most emerging Asian currencies fell, the Indonesian rupiah exchange rate appreciated 0.08 percent to IDR 11,523 per US dollar based on the Bloomberg Dollar Index on Monday (12/05). The depreciating Chinese yuan, after its central bank set the midrate at its lowest level in eight months, put pressure on other Asian currencies. Today, Indonesia's Finance Ministry sold IDR 10 trillion rupiah (USD $867 million) of bonds, higher than the indicative target of IDR 8 trillion rupiah. Meanwhile, Indonesia’s two-year bonds gained.

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The central bank of Indonesia (Bank Indonesia) decided at today’s Bank Indonesia Board of Governors’ Meeting, convened on 8 May 2014, to maintain the country's benchmark interest rate (BI rate) at 7.50 percent, with the Lending Facility rate and Deposit Facility rate held at 7.50 percent and 5.75 percent respectively. This policy is consistent with efforts to steer the rate of inflation towards its target corridor of 4.5±1 percent in 2014 and 4.0±1 percent in 2015, as well as to reduce the current account deficit to a more sustainable level.

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Completely opposite to our expectations, the benchmark stock index of Indonesia (known as the Jakarta Composite Index or IHSG) managed to climb 0.57 percent to 4,862.02 points on Wednesday (07/05). The gain was unexpected as there were no clear factors that could provide positive market sentiments. Moreover, today's Asian stock indices were mostly down. Coincidence or not, tomorrow Bank Indonesia will announce whether its benchmark interest rate (BI rate) - currently set at 7.50 percent - will be changed or maintained.

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Indonesian Finance Minister Chatib Basri said that the country's economic growth in 2015 is targeted in the range of 5.5 to 6.3 percent. Amid further Federal Reserve tapering and possible interest rate hikes in the world's largest economy, chances of capital outflows from emerging markets (including Indonesia) are becoming larger. Basri said that these global conditions impact on GDP growth, the Indonesian rupiah exchange rate and inflation. Therefore, 2015 is a transition year, reflected by tighter economic projections and state spending.

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At the end of Friday’s trading day (02/05), the Indonesian rupiah exchange rate appreciated 0.32 percent to IDR 11,525 per US dollar based on the Bloomberg Dollar Index. The rupiah performed better than most of its regional emerging peers as inflation and trade data, which were released today by Statistics Indonesia, provided positive market sentiments. Indonesian inflation eased to 7.25 percent (year-on-year) in April 2014, from 7.32 percent a month earlier. Meanwhile, the country posted a trade surplus of USD $673 million in March 2014.

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Indonesia’s HSBC Markit Purchasing Manager’s Index (PMI) showed a reading of 51.1 in April 2014, significantly up from 50.1 in the previous month, meaning that manufacturing activity in Indonesia has grown (a reading above 50.0 indicates expansion, while a reading below 50.0 indicates contraction). In fact, amid improved economic conditions as well as strong demand, manufacturing activity in Southeast Asia’s largest economy expanded at the fastest pace in 11 months.

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On the first trading day of the week (Monday 28 April 2014), the Indonesian rupiah exchange rate depreciated 0.19 percent to IDR 11,587 per US dollar based on the Bloomberg Dollar Index. Several factors - both internal and external - influenced the rupiah as well as Indonesian stocks in a negative way. The benchmark stock index of Indonesia (known as the Jakarta Composite Index or IHSG) declined a whopping 1.61 percent to 4,818.76 points, in line with the regional trend in Asia today.

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The Indonesian rupiah exchange rate ended the week with a 0.32 percent gain to IDR 11,565 per US dollar on Friday (25/04) based on the Bloomberg Dollar Index. Despite still high local demand for US dollars ahead of the month-end (for reasons of profit repatriation, imports and debt repayments), the rupiah managed to appreciate as (foreign and domestic) investments in Indonesia were reported to have reached a new record at IDR 106.6 trillion (USD $9.4 billion) in the first quarter of 2014.

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Due to a lack of positive domestic and external sentiments, the Indonesian rupiah exchange rate has depreciated to a six-week low against the US dollar. Based on the Bloomberg Dollar Index, Indonesia's currency declined 0.66 percent to IDR 11,521 per US dollar by 16:22 local Jakarta time. In fact, several negative domestic sentiments are the reason behind the current depreciation. Firstly, revived concerns about Indonesia's current account deficit and, secondly, concerns about capital outflows due to dividend payments.

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