The central bank of Indonesia (Bank Indonesia) expects further monetary easing in the Eurozone to cause more capital inflows into emerging markets (including Indonesia). The European Central Bank (ECB) surprised financial markets last week by cutting interest rates to zero percent, expand its money printing program (quantitative easing) and reduce a key deposit rate further into negative territory (per 16 March 2016). These moves are done in an effort to revive the economy of the Eurozone and combat deflation.

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Across the world, stock indices plunged on persistent concern about lower commodity prices (especially as crude oil dived to a two-month low and may start to flirt with the USD $40 per barrel level again), concern about slowing credit growth in China, while markets are also bracing for a possible US interest rate hike in December (a move that will particularly trigger capital outflows from riskier emerging market assets). This month markets are under severe selling pressure after experiencing a rally in October.

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Indonesian stocks and the rupiah started strong on Wednesday (09/09). Immediately after opening the benchmark Jakarta Composite Index rose over one percent to 4,366 points, while the rupiah appreciated 0.25 percent to IDR 14,244 per US dollar (Bloomberg Dollar Index) as these assets were supported by positive global sentiments after there had occurred a rally in most global equity markets on Tuesday (08/09).

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In line with the global trend, Indonesian stocks extended their gains on Tuesday morning (14/07). Most stock indices (across the globe) continue to move in green territory after debt-ridden Greece and its international creditors agreed - after a 17-hour long emergency meeting - to an austerity package that will keep Greece within the Eurozone. Indonesia’s benchmark Jakarta Composite Index (IHSG) had risen 0.60 percent to 4,923.36 points by 11:45 am local Jakarta time on Tuesday.

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Agus Martowardojo, Governor of Indonesia’s central bank (Bank Indonesia), predicts that the current economic turmoil in the Eurozone, caused by the Greek debt crisis, will impact on the stability of developing countries, including Indonesia. Although in terms of both trade and investment there should not be a real impact originating from Greek turmoil, the perception of macroeconomic stability will be somewhat hit on the back of global uncertainty. In line with most markets, Indonesian stocks and the rupiah weakened on Monday (06/07).

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As expected Indonesian stocks as well as the rupiah weakened after the opening of trade on Monday morning (06/07). This performance is in line with the direction of other markets in Asia. The primary reason behind this performance is the result of Greece’s referendum, conducted on Sunday (05/07), in which Greek voters overwhelmingly rejected reform plans that are demanded by the country’s international creditors. This result seriously jeopardizes the future of Greece in the Eurozone.

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Eric Sugandi, Chief Economist at the Standard Chartered Bank, expects Indonesia’s rupiah to have depreciated to IDR 13,900 per US dollar by the end of the year from IDR 13,339 currently (29/06) due to the impact of the bullish US dollar ahead of monetary tightening in the USA and the looming Greek exit from the Eurozone. Actually, this is a conservative prognosis. In case Indonesia’s central bank does not raise its benchmark interest rate (BI rate), currently at 7.50 percent, pressures on the rupiah may increase in fact increase further.

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Although Indonesia is considered as one of the Asian economies that is particularly vulnerable to a Greek exit from the euro (‘Grexit’), Indonesian stocks and the rupiah did not decline as heavily as other emerging market assets on Monday’s trading day (29/06), the first trading day after the collapse of talks between debt-ridden Greece and its international creditors. Indonesia’s benchmark Jakarta Composite Index fell 0.82 percent to 4,882.59 points while the rupiah depreciated 0.24 percent to IDR 13,339 per US dollar (Bloomberg Dollar Index).

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Indonesian stocks are expected to feel heavy downward pressure on Monday (29/06) due to stalled talks between debt-ridden Greece and its international creditors. Indonesia’s benchmark stock index (Jakarta Composite Index) still needs to open but other Asian markets immediately plunged after opening. Japan’s Nikkei 225 was down 2.28 percent as the yen appreciates (investors are chasing safe haven assets), while South Korea’s KOSPI fell 1.5 percent. Meanwhile, the euro is depreciating heavily in Asian trading.

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Most stock indices across the world continued to fall on Friday (26/06) on heightened concern that debt-ridden Greece will fail to reach an agreement with its international creditors. The deal is necessary for Greece to obtain bailout funds in order to avoid a default on its debt to the International Monetary Fund (IMF) due on 30 June 2015. A default could mean a Greek exit (Grexit) from the Eurozone and jeopardizes stability of the whole financial system of the region. Talks between both sides will continue into the weekend.

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This week, the World Bank published its Indonesia Economic Quarterly (IEQ, edition March 2013) titled 'Pressures Mounting'. It reports on key developments over the past three months in Indonesia’s economy, and places these in a longer-term and global context. To read the whole report, please visit the World Bank's website at www.worldbank.org or download this edition directly through this link. Below we present the executive summary.

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We had hoped for a continuation of the Indonesia Stock Exchange (IHSG)'s rebound after forming a green candle. It failed, however, due to negative market sentiments brought on by the bailout of Cyprus. Also, selling pressures on American stock markets late last week blocked a potential longer rally. The IHSG felt the impact of the Dow Jones Industrial Average (DJIA) that fell after a weaker NY Empire State Manufacturing Index as well as Consumer Sentiment.

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