The Indonesian rupiah exchange rate appreciated against the US dollar on Thursday (08/01) amid mostly strengthening Asian equity and currency markets as a number of positive market sentiments arose (specifically the release of the Federal Reserve’s December minutes). According to the Bloomberg Dollar Index, Indonesia’s rupiah appreciated 0.48 percent to IDR 12,674 per US dollar. Meanwhile, Indonesia’s benchmark Jakarta Composite (stock) Index was up 0.25 percent (5,221.89 points) at the end of today’s trading day.

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Indonesia’s rupiah exchange rate continued to depreciate on Wednesday (07/01). Based on the Bloomberg Dollar Index, the currency had depreciated 0.66 percent to IDR 12,731 per US dollar by 15:50 pm local Jakarta time amid prolonged weak global sentiments. Falling oil prices signal sluggish global economic growth - with the exception of the US economy which is showing structural recovery and thus fuels expectation of higher US interest rates - and speculation that Greece may exit the Eurozone.

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On 4 January 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 updates on inflation, the trade balance, manufacturing, the rupiah exchange rate, poverty, an assessment of the IMF on Indonesia’s economic fundamentals, and more.

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The Indonesian rupiah exchange rate is experiencing a weak start of the New Year. According to the Bloomberg Dollar Index, Indonesia’s currency had depreciated 1.26 percent to IDR 12,543 per US dollar by 13:35 pm local Jakarta time on Friday (02/01). However, this weak performance is in line with the performance of other emerging Asian currencies against the US dollar on today’s trading day (amid an improving US economy), thus extending the depreciating trend that started in the second half of 2014.

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On one of the last trading days of 2014, Indonesia’s rupiah exchange rate is moving sideways. According to the Bloomberg Dollar Index, the currency of Southeast Asia’s largest economy had depreciated 0.04 percent against the US dollar by 11:15 am local Jakarta time. Last week, the rupiah had nearly touched IDR 13,000 per US dollar, its weakest level since the Asian Financial Crisis in the late 1990s, amid severe volatility on global currency markets triggered by bullish US dollar momentum and developments in Russia and China.

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On 21 December 2014, 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 the rupiah exchange rate performance, a palm oil update, Indonesia’s economic growth in 2015, an update on the tender for the Soekarno-Hatta Railway Project, and more.

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The Standard Chartered Bank expects the economy of Indonesia to accelerate slightly in 2015 compared to this year’s estimated performance. The bank forecasts a growth pace of 5.2 percent year-on-year (y/y) next year, up from 5.1 percent (y/y) in 2014. Standard Chartered Bank economist Eric Sugandi recently said that the Indonesian economy will be affected by two factors: the great rotation (capital outflows from emerging markets ahead of US interest rate hikes) and growth disparity (slowing growth or recession in China and Japan).

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Although many currencies weakened against the US dollar after the US Federal Reserve stated that it is on track to raise its key Fed Fund Rate "somewhere next year" amid structural improvement of the US economy (after having kept the rate near zero for a "considerable time"), Indonesia's rupiah opened strong on Thursday (18/12). Based on the Bloomberg Dollar Index, Indonesia’s currency had appreciated 0.91 percent to IDR 12,553 per US dollar at 9:15 local Jakarta time.

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Troubles continued on Tuesday (16/12) for emerging markets. Currencies and stocks in the Asia-Pacific were mostly down amid a significant interest rate hike by Russia’s central bank, falling oil prices, and expected weakening of China’s manufacturing activity. Indonesian stocks were down 1.81 percent to 5,014.53 points by 11:20 am local Jakarta time, while the rupiah had depreciated 0.88 percent to 12,825 per US dollar by the same time according to the Bloomberg Dollar Index.

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The Indonesian rupiah exchange rate depreciated to its lowest level since August 1998 (when Indonesia was in the early recovery stage from the Asian Financial Crisis). According to the Bloomberg Dollar Index, the rupiah had depreciated 1.78 percent to IDR 12,689 per US dollar by 12:50 pm local Jakarta time on Monday (15/12). This weak performance is caused by bullish momentum of the US dollar (amid the improving US economy) in combination with local year-end US dollar demand for debt repayments.

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Broad market trends in the Indonesian rupiah have held relatively consistent over the last year, with a modest devaluation seen against the US dollar. We did see fluctuations in these trends during the summer months but many of these moves came as a result of external influences. One of the best examples here is the media turmoil that posted during this period with respect to a slowdown in the Chinese economy, and this has left many investors wondering whether the rupiah will be able to stand on its own merits and reverse some of its earlier weakness.

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New York-based financial services firm Standard & Poor's stated that Indonesia's banking industry will feel the negative impact of Indonesia's sluggish economic growth in combination with persistently low commodity prices next year. This combination may weaken profitability of the nation's banking industry. S&P puts Indonesia's economic growth in 2016 at 5 percent (y/y), below the International Monetary Fund's and World Bank's forecast as well as the central government's target, all at 5.3 percent (y/y).

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The financial markets have had an interesting year in 2015, with several significant surprises seen in the major asset classes. On the whole, 2015 could probably be best described as a year of stabilizing with stocks and commodities holding mostly steady throughout the period. This has been largely true in the currency markets, as well. But there are some factors that are likely to influence trends for world currencies in new ways in 2016. Central banks in some regions will likely have significant influence in others, and investors will need to remain aware of the possibilities early in order to position for potential trend chances in critical areas.

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Ace Hardware Indonesia, one of Indonesia's leading retail companies that is engaged in the markets of home improvement and lifestyle products, is expected to show modest (single-digit) growth in 2016. Same store sales growth is estimated to grow in the range of 8-10 percent year-on-year (y/y). This modest performance is caused by weak purchasing power in Indonesia amid sluggish economic growth and due to the fragile rupiah (against the US dollar).

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The structure of Indonesia's automotive industry remains weak as it is too dependent on imports of raw materials, making sales prices of cars highly vulnerable to the volatile Indonesian rupiah. The automotive industry has been one of the many local industries that has been plagued by Indonesia's economic slowdown and fragile rupiah (amid looming tighter monetary policy in the USA) as people's purchasing power has weakened. In the first ten months of 2015, Indonesian car sales stood at a total of 853,008 units, down 18 percent from car sales in the same period last year.

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Indonesian assets weakened on Friday (06/11) on expectation that US non-farm payrolls and US employment data would improve, suggesting that a Fed Fund Rate hike may occur in December 2015. Such expectations were correct. After Indonesian and other Asian markets had closed on Friday, the US Labor Department announced that October payrolls rose 271,000 (the largest increase this year), while the US unemployment rate touched a seven-year low at 5 percent. Furthermore, the average hourly earnings over the past 12 months climbed by the most since 2009.

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As Indonesia's inflation rate has eased to 6.25 percent (y/y) in October 2015 from 6.83 percent (y/y) in the previous month, and given that Indonesian inflation will ease more markedly in the last two months of 2015 as the impact of the subsidized fuel price hike in November 2014 will vanish, the central bank of Indonesia (Bank Indonesia) seems to have more scope to cut its current relatively high benchmark interest rate, hence giving rise to accelerated economic activity.

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Today (22/10), the World Bank released the October 2015 edition of its flagship Indonesia Economic Quarterly, titled "In Times of Global Volatility". In the report the World Bank states that despite current ongoing global uncertainties (caused by looming monetary tightening in the USA and China's economic slowdown), which make macroeconomic management difficult in the year ahead, pro-active government action could offset the negative impact and may help to boost growth.

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American financial services company Standard & Poor's warns that defaults by Indonesian companies are a serious threat over the next 18 months given their eroded balance sheets amid the country's current economic slowdown. The warning came after Indonesian mobile phone retailer Trikomsel Oke announced plans to restructure about USD $155 million worth of debt as it may not be capable to meet obligations indefinitely.

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Both Morgan Stanley and Moody's Investors Service have cast some negative perceptions on the condition of the Indonesian economy. First, American multinational financial services corporation Morgan Stanley released a report in which it stated that the recent rupiah rally will not last (Morgan Stanley maintains its year-end target of IDR 14,000 per US dollar). Then, global credit ratings agency Moody's criticized Indonesia's recently unveiled third policy package in which the government lowers energy prices for local manufacturers in a bid to support the industry.

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