Indonesian stocks and the rupiah exchange rate are feeling the negative impact of the bullish US dollar on Monday (09/03) after stronger-than-expected US payrolls fuel expectation that the US Federal Reserve may start to raise its key interest rate in June. Moreover, last week Fed Chair Janet Yellen had already signalled to Congress that the US central bank may lessen its ‘patient stance’ on a looming interest rate hike. The benchmark Jakarta Composite Index fell 1.25 percent to 5,445.84 points on Monday’s first trading session (09/03).

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On 8 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, the latest inflation update, gender equality in Indonesia, the impact of slowing credit growth on the risk outlook in Indonesia’s banking sector, and more.

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Indonesian authorities continue their efforts to ease people’s concerns about the impact of a weak rupiah on the Indonesian economy. In fact, authorities emphasize that a weak rupiah will improve the country’s trade and current account balance as Indonesian exports become more competitive. Over the past week the rupiah depreciated about 1 percent against the US dollar. Since the start of 2015, Indonesia’s rupiah has tumbled 4.4 percent against the greenback, hence being one of the worst performing emerging Asian currencies this year

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As the Indonesian rupiah exchange rate depreciated beyond the psychologically-sensitive IDR 13,000 per USD threshold on Wednesday (05/03), both Indonesian Finance Minister Bambang Brodjonegoro and Bank Indonesia Governor Agus Martowardojo stated that there is no need for panic as the performance of the rupiah against the US dollar is still in line with the performance of other currencies versus the US dollar. Based on the Bloomberg Dollar Index, the rupiah had depreciated 0.28 percent to IDR 13,028 by 13:35 pm local Jakarta time.

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While most Southeast Asian stock markets and emerging Asian currencies strengthened on Tuesday (03/03) on the back of a rebounding yen and - contrary to expectation - the decision of the Reserve Bank of Australia (RBA) to leave its cash rate a record low of 2.25 percent, Indonesian stocks and the rupiah performed rather flat. The benchmark Jakarta Composite Index fell 0.06 percent to 5,474.62 points, while the Indonesian rupiah rate appreciated 0.01 percent to IDR 12,969 according to the Bloomberg Dollar Index.

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The Indonesian rupiah - in line with other emerging Asian currencies - feels the negative impact of China’s interest rate cut. According to the Bloomberg Dollar Index, the rupiah had depreciated 0.40 percent to IDR 12,984 per US dollar at 11:10 am local Jakarta time on Monday (02/03), coming very close to the psychological boundary of IDR 13,000. Last Saturday (28/02), China’s central bank announced to cut its one-year deposit rate and the one-year lending rate by 25 basis points each to 2.50 percent and 5.35 percent, respectively.

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The Indonesian rupiah exchange rate depreciated 0.79 percent to IDR 12,932 per US dollar according to the Bloomberg Dollar Index on Friday (27/02), its weakest level since end 2008, after the country’s central bank (Bank Indonesia) said it would not intervene too much to support the currency. Bank Indonesia said that it has no target level for the rupiah and will not go against the market. For the market these are signals that the central bank is comfortable with a weaker currency as that would improve the trade balance.

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After Federal Reserve Chairwoman Janet Yellen indicated that the US central bank will be patient in raising the interest rate environment in the world’s largest economy, Indonesian assets gained on Wednesday (25/02). Both the benchmark Jakarta Composite Index and rupiah exchange rate strengthened 0.51 percent yesterday. Apart from increased speculation that the Fed will not raise interest rates before summer, expectation that Greece will avoid a disastrous default brought more positive market sentiments.

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Indonesia’s rupiah depreciated to its lowest level since mid-December 2014 nearly touching the psychological level of IDR 13,000 per US dollar ahead of Federal Reserve Chairwoman Janet Yellen appearance before the US Senate Banking Committee and the US Congress (in a two-day meeting) to elaborate on the Fed’s stance on US interest rates. As US jobless claims fell more than expected, analysts believe that it will not take long before the US central bank introduces higher borrowing costs in the world’s largest economy.

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The benchmark stock index of Indonesia (Jakarta Composite Index) edged higher on Monday (23/02) to set another all-time record high supported by foreign investors’ net buying (IDR 708.2 billion), optimism that Greece will not default on its debt or exit from the Eurozone, and on gaining Southeast Asian stock markets (while markets in China were still closed due to Chinese New Year). Meanwhile, the Indonesian rupiah exchange rate depreciated 0.09 percent to IDR 12,836 per US dollar according to the Bloomberg Dollar Index.

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Rising global stock indices at the end of last week continued to impact positively on Asian stock indices on Monday (21/10), including Indonesia's Jakarta Composite Index (IHSG). Moreover, speculation that the Federal Reserve will not alter its quantitative easing program until early next year also brought along positive market sentiments. This is expected to result in the inflow of US dollars into emerging markets. On Monday, the IHSG rose 0.70 percent to 4,578.18 despite continued foreign selling and rupiah depreciation.

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The Jakarta Composite Index (IHSG), the benchmark stock index of Indonesia, gained 0.61 percent and ended on 4,546.57 on Friday (18/10). Stock trade showed a consolidating trend with the value of transactions in the regular market amounting to IDR 4.39 trillion (USD $388.5 million). Considering the full trading week, the IHSG gained 0.60 percent with an average daily transaction value of IDR 4.18 trillion. This value is below the previous week's average of IDR 4,36 trillion.

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Car sales in Indonesia are expected to exceed the target set by the Indonesian Automotive Industry Association (Gaikindo) in 2013. The institution originally set a target of 1.1 million sold car vehicles in 2013, which is similar to the sales result in 2012. However, in September 2013 car sales recorded a new monthly record (115,921 sold units) after consumers sped up car sales as prices will increase in October. Up to the third quarter of 2013, total car sales have increased 11.2 percent compared to the same period last year.

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According to Ferry Salanto, Associate Research Director at Colliers International Indonesia, the weakening rupiah exchange rate against the US dollar in recent months has resulted in an increase of property sales in Indonesia, particularly apartments. Salanto says it is not just an investment for the buyer but also a matter of security. Property is currently a better and safer alternative to the holding of rupiahs. In the third quarter of 2013, property sales increased despite the higher benchmark interest rate and the tightening property credit environment.

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The Jakarta Composite Index (IHSG) rebounded on Thursday's trading day (17/10), supported by good news from the United States where finally an agreement was reached regarding the US debt ceiling. This agreement brought positive market sentiments on Asian stock markets, including the IHSG which rose 0.59% to 4,518.93 points. Moreover, Indonesia's minister of Economy Hatta Rajasa stated that Indonesia had not been significantly impacted by the US shutdown issue and this statement also managed to ease investors' concerns.

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The benchmark stock index of Indonesia (IHSG) was down 0.61 percent to 4,492.26 on its first trading day after the Idul Adha celebrations (when Muslims remember that Abraham was willing to sacrifice his son to God). The main reason why the IHSG was down on Wednesday (16/10) was due to continued uncertainty about the US debt ceiling issue, while the deadline (17/10) is closing in. Fitch Ratings put US Treasury bonds on Rating Watch Negative, which might be a first step before a downgrade.

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On 12 October 2013 Finance Minister and Central Bank Governors from Korea and Indonesia agreed to establish a bilateral KRW/IDR swap arrangement in the near future. The size of the swap arrangement is up to KRW 10.7 trillion/IDR 115 trillion (equivalent to USD $10 billion). The effective period of the facility will be three years, and could be extended by agreement by both sides. This Bilateral Currency Swap Arrangement (BCSA) aims to promote bilateral trade and further strengthen financial cooperation, an objective of mutual interest to both countries.

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Bank Indonesia’s Board of Governors decided to hold the BI Rate at a level of 7.25 percent, with rates on the Lending Facility and Deposit Facility held respectively at 7.25 percent and 5.50 percent. Bank Indonesia will continue to monitor global and domestic developments and further synergise the monetary and macroprudential policy mix in order to ensure that inflationary pressures remain under control, that rupiah exchange rate stability is maintained according to its fundamentals and the current account deficit is reduced to a sustainable level.

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Although part of the market players on Indonesia's Stock Exchange (IDX) engaged in profit taking after Indonesia's benchmark index (IHSG) climbed for two consecutive days, the index still posted growth of 0.71 percent to 4,418.64 points on Thursday (03/10). Factors that contributed to today's gain were the depreciating US dollar as no solution has been found yet concerning the shutdown, generally rising Asian stock indices and the positive message that is conveyed in the APEC meeting in Bali.

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Despite some appetite for profit taking, the key stock index of Indonesia (IHSG) was able to rise 0.96 percent to 4,387.60 points on Wednesday (02/10). The index was supported by the appreciating rupiah, a few rising Asian stock indices and foreign net stock purchases. The Indonesian rupiah rose against the US dollar as the latter was impacted upon by the debt ceiling and shutdown issue in the USA. Asian stock indices were mixed. Concerns about the shutdown were offset by rising Asian currencies against the US dollar.

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