The Indonesian rupiah is flirting with the IDR 13,000 per US dollar level on Monday (07/03) supported by improving risk appetite of investors. By 13:40 pm local Jakarta time, the currency of Indonesia had appreciated 0.64 percent to IDR 13,047 per US dollar (Bloomberg Dollar Index). The rupiah is now on a 13-day 'winning streak', its longest rally in six years, and is the second-best performing emerging market currency after Brazil's real so far this year. What is behind this good performance, and is it sustainable?

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Indonesia's state bonds are expected to remain a popular investment instrument in the second quarter of 2016 - perhaps even the most popular instrument - due to stable and more attractive yields compared to other investment instruments. Although the Indonesian rupiah and the benchmark stock index (Jakarta Composite Index) have both strengthened markedly over the past week (particularly supported by higher crude oil prices), the global economy remains plagued by uncertainties (China's economic slowdown and possible higher borrowing costs in the USA). Analysts say that in this context investor appetite for Indonesian bonds increases.

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The Indonesian rupiah has become the center of attention being the strongest emerging market currency (tracked by Bloomberg) so far this year. Indonesia's currency has appreciated 4.97 percent (spot market) against the US dollar since the start of 2016, outperforming the Brazilian real and Malaysian ringgit. Meanwhile, Indonesian government and central bank officials say they are committed to encourage further strengthening of the rupiah. On Friday (04/03), Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.76 percent to IDR 13,159 per US dollar.

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The Indonesian rupiah continues to appreciate sharply. By 13:15 pm local Jakarta time on Friday (04/03), Indonesia's currency had appreciated 0.96 percent to IDR 13,105 per US dollar (Bloomberg Dollar Index), its strongest level since May 2015. Meanwhile, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.76 percent to IDR 13,159 per US dollar. What explains this strong performance of the rupiah?

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In line with the overall trend in Asia, the Indonesian rupiah continued to appreciate against the US dollar on Wednesday (02/03). Based on the Bloomberg Dollar Index the rupiah strengthened 0.34 percent to IDR 13,301 per US dollar, touching a four and a halve-month high and recording its longest winning streak since 2010. Over the past ten trading days the rupiah has been appreciating against the greenback. What made the Indonesian rupiah strengthen today?

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Most Asian stock markets fell on Tuesday (23/02) on extended concerns about the world's low crude oil prices and China's economic slowdown. Indonesia's benchmark Jakarta Composite Index (IHSG) plunged 1.16 percent to 4,654.05 points, leading declines in Asia as the nation's banking shares were also affected by local financial authorities' plans to curtail the net interest margin in order to bring down Indonesian banks' lending rates and boost credit expansion in Southeast Asia's largest economy.

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Indonesia's benchmark Jakarta Composite Index (IHSG) rose 0.24 percent to 4,708.62 points, while the Indonesian rupiah appreciated 0.52 percent to IDR 13,439 per US dollar (Bloomberg Dollar Index) on Monday (22/02) amid mostly rising emerging market stocks and appreciating emerging market currencies. Investor appetite for riskier assets was triggered by higher global oil prices and rallying Chinese shares (brought about by optimism after the appointment of a new chairman of the China Securities Regulatory Commission.

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Today, Bank Indonesia will start its February two-day policy meeting. Markets are eagerly awaiting whether the central bank of Indonesia will indeed cut its key interest rate (BI rate) again. Last month, it had cut the BI rate by 0.25 percent to 7.25 percent as inflation, the current account deficit and the rupiah rate were all under control. Although the rate cut was welcomed by the business community it was considered not enough to push borrowing costs lower in Southeast Asia's largest economy hence unable to boost economic activity significantly.

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This morning various economic data were released in Asia, most importantly data from China and Japan. China posted a record USD $63.3 billion trade surplus in January 2016, while Japan saw its gross domestic product (GDP) contract more-than-expected at 1.4 percent (y/y) in the fourth quarter of 2015. However, despite weak GDP growth data Japanese stocks managed to surge, while Chinese stocks tumbled after the record monthly trade surplus. How is that possible? And what about Indonesian assets today?

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While global stocks have been moving in and out bearish territory amid severe volatility caused by China's economic slowdown and low oil prices, Indonesia's benchmark Jakarta Composite Index is one of the few stock indices that has risen so far in 2016 (2.64 percent since the start of the year). Foreign and domestic investors seem to regained confidence in Indonesian assets due to Indonesia's better-than-expected GDP growth in Q4-2015 and the knowledge that the Jakarta Composite Index already experienced a sharp correction last year, falling below its fundamental value.

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Today's release of the economic rescue package was not able to put Indonesia's main stock index (IHSG) into green territory. Also, the Indonesian rupiah maintained its losing streak. The IHSG fell 0.04 percent to 4,169.83 points. Interestingly enough, the IHSG was rising previous to the release of the package. After the release, however, it started to weaken slightly, which seems to indicate that market participants were a bit disappointed with the contents of the package as it contained no quick fixes to the economy.

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As had been announced previously, today (23/08) the government of Indonesia released an 'emergency plan' that aims to improve the financial sector while restoring confidence in the country's fundamentals as turmoil emerged on Indonesia's stock exchange, bonds market and the rupiah. Economic minister Hatta Rajasa said that this plan consists of four packages. These four packages cover the current account deficit, rupiah performance, economic growth, purchasing power, inflation and investments.

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On Thursday (22/08), Indonesia's main stock index (IHSG) was not able to continue the rebound that occurred yesterday when the country's biggest pension fund, Jamsostek, began buying blue-chip stocks in a move to support the ailing index. Indonesia's benchmark index has now lost about 20 percent since its record peak in May 2013. Today, it fell 1.11 percent to 4,171.41 points. Eight sectoral indices weakened, of which the top losers were construction (-5.78 percent), basic industry (-3.42 percent), and finance (-2.39 percent).

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Concerns about Indonesia's weakening rupiah intensified on Wednesday (21/08) as the currency is now balancing on the psychological boundary of IDR 11,000 per US dollar. The rupiah continued its downward spiral today although its decline was limited due to the intervention of Indonesia's central bank (Bank Indonesia) that started selling US dollars again in an effort to support the rupiah. According to data compiled by Reuters, the rupiah has now fallen 10.7 percent this year.

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On Tuesday (20/08), Indonesia's benchmark stock index (IHSG) continued its decline with its fourth consecutive day of losses. Amid major concerns about Indonesia's economic growth, high inflation, tighter monetary policy and current account deficit, the IHSG fell 3.21 percent to 4,174.98 points. It means that the index now stands about 21 percent lower than its record peak in May 2013. Foreign investors have been pulling money out of the Indonesian market. According to Bloomberg, about USD $255 million has been retracted in the last two days.

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The government of Indonesia proposes to allocate IDR 336.24 trillion (USD $32.6 billion) for subsidy spending in the 2014 state budget draft: IDR 284.7 trillion (USD $27.6 billion) for energy subsidies and IDR 51.6 trillion (USD $5.0 billion) for non-energy subsidies. The proposed amount implies a 3.41 percent fall in total subsidy allocation compared to Indonesia's state budget in 2013. However, despite a reduction, subsidy expenditure is still large at 18.5 percent of total government spending (IDR 1,816.7 trillion).

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Analysts expect that Indonesia's benchmark stock index (IHSG) will end mixed today (20/08) after yesterday's large plunge amid heavy market concerns. Yesterday, the index dropped 5.58 percent to 4,313.52 points, the lowest since October 2011. Indonesia posted a current account deficit in the second quarter of 2013, while Thailand entered into a recession. The MSCI Emerging Market index¹, which includes both countries, fell 1.4 percent to a six-week low. Below a short overview of factors that caused negative sentiments on Indonesia's market.

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After two days of growth, Indonesia's main stock index (IHSG) became victim of profit taking on Thursday (15/08). Particularly domestic investors were eager to sell their Indonesian assets. Falling indices on Wall Street on Wednesday (14/08) in combination with global uncertainty about the end of the Federal Reserve's quantitative easing program made a negative impact on Asian stock indices, including the IHSG. Indonesia's central bank's decision to keep its benchmark interest rate at 6.50% was well-received by most investors.

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The foreign exchange reserves of Indonesia keep on falling from its historical peak of USD $124.64 billion in August 2011 to USD $92.67 billion at the end of July 2013. This development seems to highlight long-standing weaknesses in Indonesia's sovereign's external finances, as credit agency Fitch Ratings detected on several occasions before. The republic of Indonesia is currently characterized by four deficits, to wit a current account deficit, a balance of payments deficit, a trade balance deficit and a fiscal deficit.

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After Wall Street turned back into the green zone on Tuesday (13/08) and was accompanied by continued rising stock indices in Europe, it provided good support for Asian stock indices on Wednesday (14/08), including Indonesia's main stock index (IHSG). Indonesian mining commodities and plantation stocks fell but these losses were offset by rising big cap stocks (particularly finance stocks) and speculation that Indonesia's central bank will keep its benchmark interest rate (BI rate) at 6.50 percent.

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