Emerging market assets, including Indonesian stocks and the rupiah, are being supported today by the release of China's official third quarter gross domestic product (GDP) growth figure. The economy of China expanded 6.9 percent (y/y) in Q3-2015, slightly beating expectations (at 6.8 percent y/y) on relatively robust spending by Chinese consumers. Most emerging market assets strengthened after the news as a slightly better Chinese economy (implying higher Chinese demand) impacts positively on other countries in the Asian region on expectation of improving export performance.

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Agus Martowardojo, Governor of the central bank of Indonesia (Bank Indonesia), said there are still 320 local companies that have not complied with the central banks' hedging requirements regarding foreign loans. A Bank Indonesia study conducted in late-2014 showed that the country’s private sector foreign debt is vulnerable to several risks i.e. currency risks, liquidity risks and overleverage risks due to unhedged loans.

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As expected, the central bank of Indonesia (Bank Indonesia) left its benchmark interest rate (BI rate) unchanged at 7.50 percent at the October Board of Governor's meeting on Thursday (15/10). Meanwhile, Bank Indonesia maintained the deposit facility rate and the lending facility rate at 5.50 percent and 8.00 percent, respectively. Rates were left unchanged as the global economic outlook remains highly uncertain. This jeopardizes the stability of the Indonesian rupiah.

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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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In a draft regulation, Indonesia's Financial Services Authority (OJK), the government agency that regulates and supervises the financial services sector, proposes that the country's leading banks have set aside more capital - between 1 and 3.5 percent of their risk-weighted assets (a "capital surcharge") by December 2015 - as a buffer against financial market volatility risks. The new policy aims to strengthen Indonesia's financial system amid the country's economic slowdown and severe external pressures (looming higher US interest rates and China's slowdown).

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On Tuesday (13/10), Chinese authorities announced that the country's trade balance widened to 376.2 billion yuan in September 2015, beating forecasts. China's exports contracted less than expected at -1.1 percent. However, China's imports (-17.7 percent) plunged more than expected and now recorded the eleventh month of straight declines. Although the balance is better than had been forecast, China's latest import and export data show again that the world's second-largest economy is plagued by a persistent slowdown.

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The Indonesian rupiah is slightly weakening on Monday (12/10) as market participants are responding to Federal Reserve Vice Chairman Stanley Fischer's remarks in Lima (Peru) where he attended the latest IMF meeting as well as a banking seminar. Fischer said that there could still be a Fed Fund Rate hike before the end of the year, provided that US economic data (and global circumstances) allow such a move. Based on the Bloomberg Dollar Index, the rupiah had depreciated 0.02 percent to IDR 13,414 per US dollar by 12:15 pm local Jakarta time.

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On 11 October 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 subjects such as the government's third stimulus package, the remarkable performance of Indonesian stocks and the rupiah, growth forecasts from the World Bank and the IMF, Indonesian car sales, a palm oil industry update, and more.

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The Indonesian rupiah is having one of its strongest days in recent history. By 13:00 pm local Jakarta time, the rupiah had appreciated 3.90 percent to IDR 13,346 per US dollar (Bloomberg Dollar Index). After the release of the Federal Reserve's FOMC minutes on Thursday (08/10), emerging markets assets have strengthened robustly on speculation that the Fed will not raise US interest rates anytime soon. Rebounding commodity prices also support the performance of the rupiah. Indonesia's currency is set to post its best weekly gain in more than a decade.

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After the release of the minutes of the Federal Reserve's 16-17 September policy meeting (FOMC), Indonesian assets (rupiah and stocks) strengthened significantly on Friday (09/10). The minutes, released on Thursday (08/10), show that the US central bank prefers to postpone a US interest rate hike for now in order to wait for additional information that informs whether the US economic growth outlook will not deteriorate due to global conditions. Moreover, US inflation remains stuck at low levels (far below the Fed's 2 percent target) due to lower oil prices and the strong US dollar.

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The decision of Indonesia's central bank (Bank Indonesia) to raise its benchmark interest rate by 50 basis points to 7.00 percent and its deposit facility (Fasbi) by 0.50 percent to 5.25 percent seem to have had a good impact on the value of Indonesia's stocks and the rupiah. Indonesia's benchmark stock index (IHSG) rose 2.23 percent to 4,195.09 points on Friday (30/08), implying a three-day winning streak. Since the first trading day of this year, the IHSG is down 3.47 percent.

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For the second day in a row Indonesia's benchmark stock index (IHSG) was able to post a gain. Today, it rose 1.92 percent to 4,103.59 points. This rebound is possibly the result of the higher key interest rate. Yesterday, it was announced that the central bank (Bank Indonesia) scheduled an extra meeting to discuss monetary policy. Immediately speculation emerged that the BI rate might be raised by 50 basis points. And indeed it was raised, much to the liking of many investors and analysts.

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The government of Indonesia has revised the macroeconomic assumptions that are stated in the State Budgets (APBN) of 2013 and 2014 after a meeting with the budgetary body of the House of Representatives (Badan Anggaran DPR) on Wednesday (28/08). It is the third time that the 2013 State Budget has been revised in order to put it more in line with recent global developments. As the government was also too optimistic when drafting the 2014 Budget, it felt the need for a revision (only 12 days after the announcement of the Budget).

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Although Indonesia is one of the victims of the reversal of investment flows from emerging markets to developed markets, it is still far from a crisis. Global uncertainty regarding the possible ending of the Federal Reserve's monthly USD $85 billion bond-buying program (QE3) and, to a lesser extent, the possible invasion of the US in Syria have worried investors and resulted in the withdrawal of funds from emerging markets. Funds are flowing back to western developed countries that have recently been showing signs of continued economic recovery.

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Most of us who were hoping for a limited weakening of Indonesia's benchmark stock index (IHSG) today (27/08) were to be disappointed. Instead of a limited decline, the IHSG fell 3.71 percent to 3,967.84 points. Market participants are concerned about both the global and domestic economy, thus pulling money out from Indonesia. The weakening rupiah and weak stock index openings in Europe (due to tensions in Syria) pushed the IHSG further down into red territory. Foreign investors were again net sellers of Indonesian assets.

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Indonesia's current account deficit, which caused much alarm among the investor community, is expected to ease to about 2.5 percent of gross domestic product (GDP) in the second half of 2013. This assumption is supported by Indonesia's central bank and various analysts. The country's current account deficit reached USD $9.8 billion or 4.4 percent of GDP in Q2-2013. In combination with the weakening rupiah, higher inflation and the possible end to the Federal Reserve's quantitative easing program, investors have been pulling money out of Indonesia.

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After market participants had time in the weekend to think over the 'rescue packages' of the Indonesian government and central bank (Bank Indonesia) that were released on Friday (23/08), they seemed unconvinced about the short-term impact of the packages. As a result, Indonesia's main stock index (IHSG) fell 1.18 percent to 4,120.67 points on Monday (26/08), which is the IHSG's lowest level since 7 September 2012. The Indonesian rupiah gained 0.06 percent to IDR 10,841 (Bank Indonesia's mid rate).

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Despite the announcement of an economic policy package aimed at overcoming the impact of global financial turmoil, Indonesia's main stock index (IHSG) was not able to end the week on a positive note, while the value of the rupiah on the spot market depreciated 1.68 percent to IDR 11,058 per US dollar on Friday (23/08) amid a majority of strengthening Asian currencies, including the Indian rupee (0.67 percent) and the Thai baht (0.28 percent). Based on Bank Indonesia's mid rate, the rupiah fell 4.4 percent against the US dollar to IDR 10,848 last week.

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Similar to the Indonesian government, Indonesia's central bank also announced a fiscal policy package to support sustainable nationwide economic growth by curbing inflation, maintaining a more sustainable balance of payments as well as strengthening financial system stability. These additional policies are expected to synergise with the policy package unveiled by the government on Friday (23/08). These measures were taken as both the rupiah and Indonesia's main stock index (IHSG) are in a downward spiral.

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The rebound that happened in the first session of Friday's trading day (23/08) gave hope that Indonesia's main stock index (IHSG) would end the disastrous week on a positive note. However, in the second session of the day market participants began selling Indonesian assets causing the index to fall again, although the fall was limited. In line with the Asian region, the index lost 0.04 percent to end at 4,169.83 points. Even the highly anticipated 'rescue package' of the Indonesian government was not able to support the index.

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