The foreign exchange reserves of Indonesia rose USD $2.4 billion to USD $104.5 billion in February 2016 according to a statement of Indonesia's central bank (Bank Indonesia). The lender of last resort attributed this forex growth to foreign exchange receipts from the oil & gas sector, foreign debt withdrawals, and the sale of foreign-denominated bonds (SBBI). These receipts were more than enough to cover for the use of foreign exchange for public foreign debt payments.

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Indonesia's consumer confidence regarding the country's macroeconomic conditions weakened in February 2016. Bank Indonesia's Consumer Confidence Index dropped 2.6 points to 110. The survey indicates that there are two reasons that explain this decline. Firstly, lower optimism about current economic conditions of Indonesia and, secondly, lower optimism regarding job availability over the next six months. Bank Indonesia's monthly survey is based on data provided by 4,600 households in 18 Indonesian cities across the archipelago.

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The Indonesian government, central bank (Bank Indonesia) and the Financial Services Authority (OJK) have formed a team that will study and encourage lower lending and mortgage rates in Indonesia - to single digit levels - by the end of 2016. Indonesia's Chief Economics Minister Darmin Nasution explained that this is part of government efforts to boost economic activity in Southeast Asia's largest economy. Indonesia's lending rates have been high due to banks' prudent management and the high cost of funds, hence limiting credit growth as well as economic growth.

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In line with expectations, the central bank of Indonesia (Bank Indonesia) cut its benchmark interest rate (BI rate) by 25 basis points to 7.0 percent at its February Board of Governor's policy meeting. Its overnight deposit facility rate (known as Fasbi) and lending facility rate were also cut by 0.25 percent to 5.00 percent and 7.50 percent, respectively. After the rate cut in January it was the second straight month of lower borrowing costs in Southeast Asia's largest economy. Meanwhile, Bank Indonesia also cut the reserve-requirement ratio for rupiah deposits at commercial banks by 100 basis points to 6.5 percent.

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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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The latest survey of Indonesia's central bank (Bank Indonesia) shows that price growth and sales growth in Indonesia's residential property sector continued to slow in the fourth quarter of 2015. The Q4-2015 residential property price index rose by a mere 0.73 percent (quarter-to-quarter) from a growth pace of 0.99 percent (q/q) in the preceding quarter. Indonesian property developers expect that this slowdown will continue at least throughout the first half of 2016.

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The Indonesian rupiah is appreciating markedly on Wednesday (10/02). By 12:30 pm local Jakarta time, Indonesia's currency had appreciated 1.62 percent to IDR 13,391 per US dollar based on the Bloomberg Dollar Index, a three-month high. Today, most emerging currencies in Asia are appreciating against the US dollar ahead of Fed Chair Janet Yellen's testimony in US Congress this week. Other factors that support strong rupiah appreciation are speculation that Indonesia will attract investors due to accelerating domestic economic growth and the move of Japan's central bank to introduce negative interest rates.

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The central bank of Indonesia (Bank Indonesia) announced on Friday (05/02) that Indonesia's foreign exchange reserves declined USD $3.8 billion to USD $102.1 billion at the end of January 2016. This fall was caused by government (foreign) debt settlements as well as interest payments over global bonds. The central bank emphasized that the country's foreign exchange reserves are still at a safe level as they can adequately cover 7.5 months of imports or 7.2 months of imports and servicing of government external debt repayment, well above the global reserve standard at three months of imports.

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The central bank of Indonesia (Bank Indonesia) reported that Indonesian consumers are becoming increasingly optimistic about economic prospects and their personal financial situation this year, evidenced by a 5.1 point rise in Bank Indonesia's Consumer Confidence Index to 112.6 points in January 2016. This index is based on a survey, involving 4,600 households in 18 cities across the archipelago (a reading above 100 indicates optimism, while a reading below 100 indicates pessimism).

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As expected, credit growth in Indonesia slowed in 2015 amid the nation's overall economic slowdown. Loan growth was particularly affected by weaker demand for property and working capital loans. Indonesia's gross domestic product (GDP) growth in 2015 is estimated to have slowed to 4.7 percent year-on-year (y/y), the country's slowest growth pace since 2009. In its January policy meeting Bank Indonesia decided to cut its key interest rate by 25 basis points to 7.25 percent, a move that should encourage loan growth this year in Southeast Asia's largest economy.

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In essence, the Indonesian rupiah showed the same performance in 2024 as it did in the previous four years, namely it continued to weaken against the US dollar, albeit (the outlook for) interest cuts in the United States did cause a sharp, yet temporary, rebound in August 2024. Shortly after that rebound, the rupiah came under heavy pressures again, which continued into the last month of 2024.

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For Indonesia’s currency and stock markets, November 2024 was not a good month. We saw some rupiah depreciation reappearing (against the US dollar) and a falling benchmark stock index (Jakarta Composite Index, or IHSG). What this means is that market participants are nervous. And in times of nervousness, Indonesian assets are typically the first victim as participants seek safe haven assets. 

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As expected, Bank Indonesia cut the benchmark interest rate at its monetary policy meeting on 17-18 September 2024. The BI rate was cut by 25 basis points (bps) to 6.00 percent, while also lowering the deposit facility and lending facility rates by 25 bps to 5.25 percent and 6.75 percent, respectively.

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When global markets became really confident that the US Federal Reserve would cut its benchmark interest rate in September 2024, there occurred a sort of relief rally that is visible in Chart A below. Amid the increase in risk appetite, Indonesian stocks and the rupiah rate strengthened. Chart A shows that this rally started in late-July or early August 2024.

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Over the past month, expectations of a looming interest rate cut in the United States (US) have only grown. The US Federal Reserve is widely expected to start cutting its benchmark interest rate at its policy meeting scheduled for 17-18 September 2024. In fact, the question seems to be whether it’ll be a 0.25 or 0.50 percentage point cut.

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It is very interesting to take a quick look at the conclusions drawn at the latest US Federal Reserve meeting (held on 30-31 July 2024), as these conclusions have a big impact on global financial markets, including the Indonesian rupiah rate (and even on monetary policy of Indonesia’s central bank, Bank Indonesia).

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In line with our projection, the central bank of Indonesia (Bank Indonesia) decided to raise its benchmark interest rate by 25 basis points (bps) to 6.00 percent after its October 2023 monetary policy meeting (held on 18-19 October 2023). Meanwhile, it also raised its deposit facility and lending facility by 25 bps, each, to 5.25 percent and 6.75 percent, respectively.

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The central bank of Indonesia (Bank Indonesia) kept its benchmark interest rate at 5.75 percent at the two-day policy meeting on 20-21 September 2023. The lender of last resort also kept its deposit facility and lending facility rates at 5.00 percent and 6.50 percent, respectively.

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In line with expectations, the central bank of Indonesia (Bank Indonesia) kept its benchmark interest rate (BI 7-Day Reverse Repo Rate) at 5.75 percent after the two-day policy meeting on 15-16 February 2023. It also kept its deposit facility and the lending facility at 5.00 percent and 6.50 percent, respectively.

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At the latest annual meeting of Indonesia’s central bank (Bank Indonesia), this lender of last resort presented a white paper on the digital rupiah (central bank digital currency, or CBDC). Just like what is happening abroad (and likely also in response to the rise of cryptocurrencies), Bank Indonesia is eager to launch a digital rupiah, possibly ultimately aiming to gradually phase out the use of physical money (notes and coins).

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