Global markets declined for a fifth straight day on Thursday (24/09) on persistent negative sentiments related to sluggish global economic growth, the Volkswagen emission scandal and the continuation of uncertainty about the timing of higher US interest rates after the Federal Reserve kept rates unchanged at its September policy meeting. Japan’s Nikkei 225 Index fell 2.76 percent today, while European and US stocks are deep in the red. Indonesian markets were closed due to Idul Adha celebrations (the Muslim day of sacrifice) and will therefore respond to these developments on Friday (25/09).

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Apart from external factors (China’s weak manufacturing activity and persistent uncertainty about the timing of higher US interest rates) that plague Indonesian assets today, there are also domestic factors that push Indonesian stocks and the rupiah into the red. These domestic factors include Indonesia’s downgraded economic growth forecasts and the central bank’s downgraded rupiah outlook. Meanwhile, Indonesia’s foreign exchange reserves - used to defend the rupiah - have declined further.

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In line with other Asian markets, Indonesian stocks and the rupiah are weakening heavily on Wednesday (23/09). Based on the Bloomberg Dollar Index, Indonesia’s rupiah had depreciated 0.71 percent to IDR 14,655 per US dollar by 11:08 am local Jakarta time, while the benchmark Jakarta Composite Index had fallen 1.56 percent to 4,276.43 points by the same time, with the financial sector in particular taking a hit. There are several causes that explain this weak performance today.

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Today (22/09), the Indonesian rupiah extended its weak performance and has passed beyond the level of IDR 14,500 per US dollar. Most Asian currencies continue to fall against the greenback as uncertainty about the timing of higher US interest rates persists. Although the Federal Reserve decided to postpone a Fed Fund Rate hike at its September policy meeting, markets are still preparing for a hike before the year-end as many Federal Reserve objectives had been met.

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The central bank of Indonesia (Bank Indonesia) estimates that inflation will ease below seven percent year-on-year (y/y) in September 2015 on the back of lower prices of raw foods and lower administered prices (including fuel and electricity) in the post the Ramadan and Idul Fitri period. Bank Indonesia Governor Agus Martowardojo said the central bank expects inflation at around 6.95 percent (y/y) in September.

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Most Asian markets started weak in the new trading week on persistent uncertainty about the timing of higher US interest rates after the US Federal Reserve decided to postpone a Fed Fund Rate hike last week. This context raises investors’ appetite for safe haven assets. By 13:45 pm local Jakarta time on Monday (21/09), Indonesia’s rupiah had depreciated 0.66 percent to IDR 14,469 per US dollar according to the Bloomberg Dollar Index, while the benchmark Jakarta Composite Index was down 0.22 percent to 4,370.63 points.

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Indonesia’s foreign debt growth slowed in July 2015 by 3.7 percent (y/y) to a total of USD $303.7 billion from a 6.3 percent (y/y) growth pace in the preceding month. Based on the latest data from Indonesia’s central bank (Bank Indonesia) the nation’s total external debt consisted of USD $134.5 billion public sector foreign debt and USD $169.2 billion private sector foreign debt. Both public and private sector foreign debt growth slowed in July (compared to June) as these sectors were hesitant to take on more debt due to the depreciating rupiah.

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After the Federal Reserve announced that it kept its key interest rate at the historically low level of 0.0-0.25 percent at the September policy meeting, most of Asia’s emerging market stocks were up on relief that their currencies are not to depreciate heavily (yet) due to the looming rate hike. Yesterday (17/09), the US central bank said it postponed further monetary tightening due to weakness in the global economy, unsettled financial markets, and low US inflation. However, a Fed Fund Rate hike is still likely to occur before the year-end.

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In line with expectation, the central bank of Indonesia (Bank Indonesia) decided to keep its key interest rate (BI rate) at 7.50 percent for a seven consecutive month in September’s Board of Governor’s meeting (17/09) as it aims to stabilize the rupiah amid global volatility caused by looming higher US interest rates and China’s hard landing (as well as yuan depreciation), while combating inflation which stood at 7.18 percent (y/y) in August. The overnight deposit facility rate and lending facility rate were left unchanged at 5.5 percent and 8 percent, respectively.

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Morgan Stanley Investment Management, a leading global investment firm, said it now considers Indonesia’s rupiah and Malaysia ringgit as the most attractive emerging-market currencies. Both currencies have been the worst-performing Asian currencies against the US dollar this year amid looming tighter monetary policy in the USA, low commodity prices and China’s economic slowdown (as well as a political scandal in Malaysia). The ringgit has depreciated 21 percent, while the rupiah has weakened 16.2 percent against the US dollar since the start of the year. Both currencies are touching 17-year lows.

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Worldwide, most stock indices fell on Wednesday (07/08), particularly Japan's Nikkei index, after it has been speculated that the Federal Reserve may phase out the third round of its quantitative easing program in September 2013. This program, involving a monthly USD $85 billion bond-buying package, aims to spur US economic growth while keeping interest rates low. However, one important side effect has been rising stock markets around the globe. Now the end of QE3 is in sight, investors shy away from riskier assets.

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Indonesia’s inflation rate in July 2013 was significantly higher than analysts had previously estimated. The country’s July inflation figure accelerated to 3.29 percent. On year-on-year basis, it now stands at 8.61 percent, the highest inflation rate since many years. Particularly food commodity and transportation prices rose steeply. The main reason for Indonesia's high inflation is the reduction in fuel subsidies. In late June, the government increased the prices of subsidized fuels in order to relieve the ballooning budget deficit.

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As I stated before, mixed sentiments continue to influence the performance of Indonesia's main stock index (IHSG). During Thursday's trading day (01/08), the index moved sideways. News that the Federal Reserve intends to continue its bond-buying program made a good impact. However, this positive sentiment was offset by the release of Indonesia's high July inflation rate as well as the country's continued trade deficit. At the end of the day, the IHSG managed to post a gain as it received support from rising stock indices in Asia.

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Despite being up at the start of the trading day, Indonesia's main stock index (IHSG) was under pressure for the remainder of Wednesday (31/07) due to investors' appetite for profit taking. Indonesian company reports (Semester I-2013) were mixed and, in combination with other mixed Asian indices, it made many investors wait and see for the meeting of the Federal Reserve first. Asian indices suffered because of Malaysia's and India's downgrade by Fitch Ratings. This triggered speculation whether Indonesia's outlook will be cut as well.

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Last week (22-26 July 2013), Indonesia's main stock index (IHSG) ended 1.39 percent down at 4,658.87. The daily value of transactions on the regular market narrowed to an average of IDR 3 trillion (USD $300 million) from IDR 3.84 trillion in the previous week. Foreigners still recorded net sales amounting to IDR 92.9 billion (USD $9.3 million). Lack of positive sentiments, financial results of companies that were below expectation and the continued weakening of the rupiah against the US dollar resulted in the decline of the index.

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Indonesia's main stock index (IHSG) continued its weakening trend this week. The index fell 0.93 percent to 4,674.12 on Thursday (25/07). This downward movement today was in line with most other Asian stock indices. All sectoral indices of the IHSG weakened, except for the miscellaneous industry. Indonesian blue chips, in particular, were under pressure. Unilever Indonesia fell 3.38 percent and Bank Mandiri lost 3.37 percent. Trade was relatively quiet with value of transactions at IDR 4.5 trillion (USD $441.2 million).

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Indonesia's main stock index (IHSG) was not able to continue yesterday's rise as investors, particularly domestic investors, engaged in profit taking. Foreign investors, who were net buyers of Indonesian assets, were not able to guide the IHSG to positive territory. Mixed Asian stock indices, responding to weak Chinese data, did not support Indonesia's index. Moreover, market participants expect that the rupiah will continue its weakening trend and have begun speculating whether the benchmark interest rate (BI rate) will be raised again.

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Yesterday's rising indices on Wall Street, high expectations of companies' financial reports and positive statements regarding economic growth in China resulted in a good day at the Indonesia Stock Exchange (IDX). Indonesia's main stock index, the IHSG, rose 1.88 percent to 4,767.16 on Tuesday (23/07), even though technical indicators seemed to predict a weakening of the index. Also the continued fall of the Indonesian rupiah did not turn investors away from the market. In fact, foreign investors were net buyers of Indonesian stocks.

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As I wrote before, profit taking in combination with mixed movements of global stock indices resulted in the limited movement of Indonesia's main stock index (IHSG) on Monday (22/07). The IHSG was corrected 0.96 percent to 4,678.98. All of the sectoral indices weakened, except for the plantation and mining sectors. As there were no positive news publications that would make investors buy assets, they decided to engage in profit taking after the IHSG had risen for five consecutive days.

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The Indonesian rupiah (IDR) is experiencing one of its worst losing streaks in a decade. On Friday (19/07), the currency weakened to IDR 10,070 against the US dollar, which implies a devaluation of 4.14% in 2013 so far. The central bank of Indonesia, Bank Indonesia, does all it can to support the currency: the country's lender of last resort supplies dollars to the market triggering the reduction of foreign reserves from USD $105 million at end-May to $98 million at end-June, and raised its benchmark interest rate (BI Rate) by 50 bps to 6.50%.

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