The Indonesian rupiah is appreciating against the US dollar on Monday (06/02). Based on the Bloomberg Dollar Index, the rupiah had appreciated 0.13 percent to IDR 13,325 per US dollar by 12:15 pm local Jakarta time. It is assumed that optimism about Indonesia's improving economic fundamentals in combination with rebounding commodity prices and slower-than-expected US economic growth supports the currency of Indonesia. Meanwhile, other Asian emerging market currencies are also appreciating against the greenback.

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The International Monetary Fund (IMF) is optimistic about economic growth of Indonesia in the foreseeable future. In its latest report the Washington-based institution says Indonesia's solid economic policies and increased household consumption support strong growth. The stronger rupiah and low inflation have caused people's purchasing power to strengthen. This is a major positive boost for the economy as household consumption accounts for more than 55 percent of total economic growth in Southeast Asia's largest economy.

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The benchmark Jakarta Composite Index rose 0.13 percent to 5,360.77 points on Friday (03/02), while the Indonesian rupiah appreciated 0.06 percent to IDR 13,343 per US dollar (Bloomberg Dollar Index). This slight growth was in line with the performance of most global stock markets on Friday after Wall Street ended little changed on the preceding trading day.

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The Indonesian rupiah is appreciating sharply on Thursday (05/01) as the US dollar retreats from its (near) 14-year peak against a basket of major global currencies ahead of the release of the US Federal Reserve's December policy meeting minutes. Based on the Bloomberg Dollar Index, the rupiah had strengthened 0.83 percent to IDR 13,328 per US dollar by 14:00 pm local Jakarta time on Thursday (05/01). Particularly the unexpected fall of the US dollar against China's yuan spooks market players.

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When on Friday afternoon (30 December 2016) the Indonesia Stock Exchange (IDX) closed its doors it effectively brought the year 2016 to an end in terms of stock trading on the local bourse. On Friday Indonesia's benchmark Jakarta Composite Index fell 0.11 percent to 5,296.71 points after two days of impressive gains. However, when looking at full-year 2016 the Jakarta Composite Index climbed 15.32 percent, hence being the second-best performing (national) benchmark stock index (after Thailand) in the Southeast Asian region in 2016.

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On the last trading day before the Christmas break, Indonesia's benchmark Jakarta Composite Index fell for the ninth straight day, the longest losing streak since August 2005. On Friday (23/12) the index fell 0.30 percent to 5,027.70 points. The performance of Indonesian stocks was in line with other markets in Asia. Ahead of Christmas and New Year festivities, trade volume is low as investors are taking a break. Meanwhile, there are no positive sentiments stemming from the Indonesian market.

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As we approach the year-end, and without the presence of positive triggers, investors seem to engage in profit-taking. Therefore, Indonesia's benchmark Jakarta Composite Index now extended its losing streak to seven straight sessions. Indonesian stocks fell 0.99 percent to 5,111.39 points on Wednesday (21/12), a decline led by consumer staples and financial shares, while the Indonesian rupiah depreciated 0.16 percent to IDR 13,459 per US dollar (Bloomberg Dollar Index). The Federal Reserve's recent rate hike still seems to overshadow global investor sentiment.

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The Federal Reserve decided - in line with expectations - to raise its benchmark Fed Funds Rate by 0.25 percent to the range of 0.50 - 0.75 percent, exactly one year after its first rate hike (in a decade). Furthermore, the Fed Chair Janet Yellen also indicated it sees three more interest rate hikes in 2017. This is a bit more hawkish than markets expected. Tighter monetary policy in the USA is required as the US labor market and growth in household spending improves. Inflation has also improved but remains below the Fed's 2 percent (y/y) target. Business investment, however, remains soft.

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The central bank of Indonesia (Bank Indonesia) announced that the country's foreign exchange reserves fell to USD $111.5 billion at the end of November 2016, from USD $115.0 billion in the preceding month. The USD $3.5 billion decline was caused by Bank Indonesia's efforts to stabilize the rupiah exchange rate as well as the government's external debt repayments. Despite the decline, Bank Indonesia regards the current level of forex reserves as healthy.

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The Indonesian rupiah has been appreciated significantly over the past two days versus the US dollar. By 12:00 noon local Jakarta time on Wednesday (07/12), Indonesia's currency had strengthened 0.29 percent to IDR 13,331 per US dollar (based on the Bloomberg Dollar Index). Meanwhile, Bank Indonesia's Jakarta Interbank Spot Dollar Rate (JISDOR) appreciated 0.51 percent to IDR 13,336 per US dollar today. Lets zoom in on this performance.

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The reason why we frequently discuss Indonesia’s financial markets (especially the stock and money markets) in our monthly reports is because these markets reflect the degree of confidence there exists among domestic and foreign investors (which involves individuals as well as the big corporations) in global political and economic conditions and in the economic and fiscal fundamentals of Indonesia.

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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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There was some confusion about the government’s plan to raise the value-added tax (VAT) rate from 11 percent to 12 percent. Based on Law Number 7 of Year 2021 on Harmonization of Tax Regulations (specifically in Article 7), a one percentage point VAT hike from 10 to 11 percent materialized on 1 April 2022. That law also ordered for another one percentage point hike (to 12 percent) on 1 January 2025, the latest.

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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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As usual, we are going to take a look at the US Federal Reserve’s monetary policy as policy changes in the United States (or market perceptions about approaching policy changes) impact on the Indonesian rupiah rate as well as on monetary policy that is set by 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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