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Stock indices in Asia were mixed on the first trading day of the week. Indonesia’s benchmark Jakarta Composite Index plunged 2.11 percent to 4,120.50 points (a two-year low), while the rupiah (remarkably) appreciated 0.13 percent to IDR 14,674 per US dollar according to the Bloomberg Dollar Index. Meanwhile, European markets were down after opening on Monday (28/09). What influenced these markets today?
After opening on Monday (28/09) Indonesian stocks rapidly fell amid mixed Asian markets. The main factor that causes several Asian markets to fall is declining Chinese industrial profits (triggering concern about a deepening slowdown of the world’s second-largest economy). China’s industrial profits fell 8.8 percent in August, down from July’s 2.9 percent drop. By 09:50 am local Jakarta time, the benchmark Jakarta Composite Index was down 1.41 percent to 4,150.27 points.
The central bank of Indonesia (Bank Indonesia) is set to announce the second installment of a policy package that aims at raising onshore US dollar supplies (and liquidity). As the rupiah has been the second worst-performing Asian emerging market currency (after Malaysia’s ringgit), having depreciated 18.1 percent against the US dollar so far in 2015, Indonesian policymakers are anxious to prop up the ailing currency in order to safeguard the country’s financial stability. Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) stood at IDR 14,690 per US dollar on Friday (25/09), a 17-year low.
Stock markets in Asia were mixed on Friday (25/09) after Federal Reserve Chairwoman Janet Yellen said in a speech at the University of Massachusetts that the US central bank is still on track to raise interest rates before the year-end (provided no economic shocks take place as the move is data-dependent). After this looming hike, Yellen suggests to gradually tighten US monetary policy thereafter.
In line with other Asian emerging markets and currencies, Indonesian stocks and the rupiah are weakening on Friday (25/09) after Federal Reserve Chairwoman Janet Yellen said during her speech at the University of Massachusetts that US interest rates are likely to be raised before the year-end, provided no economic shocks occur. Yellen stated that most FOMC participants agree on a Fed Fund Rate hike later this year, followed by gradual further monetary tightening thereafter.
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.
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.
On 20 September 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 subjects such as the impact of the US Federal Reserve’s monetary policy on Indonesian assets, Indonesia’s key interest rate, the trade balance, foreign debt, the banking sector, poverty, and much more.
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.
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.
Latest Columns US Interest Rates
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.
Global credit rating agency Moody's Investors Service expects loan growth in Indonesia to continue to slow in 2016 as sluggish economic growth curtails corporate and individual demand for funding in Southeast Asia's largest economy. Meanwhile, a survey conducted by Standard & Poor's shows that the majority of Indonesians are financially illiterate, implying that the government needs to increase efforts to educate its population. Lastly, Asian Development Bank President Takehiko Nakao is convinced that a US interest rate hike will not cause a new financial crisis in Asia. Lets zoom in a bit further on these three subjects.
The central bank of Indonesia (Bank Indonesia) is expected to keep its benchmark interest rate (BI rate) relatively high in order to safeguard Indonesia's financial stability in 2016 (instead of seeking accelerated economic growth through a rate cut). Despite easing pressures on inflation and the country's current account balance, Bank Indonesia Governor Agus Martowardojo said that persistent global uncertainty (referring to the looming US Fed Fund Rate hike and China's slowdown) justifies the tight monetary stance.
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.
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.
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.
After the release of US non-farm payrolls on Friday (02/10) markets are starting to doubt whether the Federal Reserve has room to raise its key Fed Fund Rate at all in 2015. In September a total of 142,000 jobs were added to the US economy, well below the market consensus of 201,000. Moreover, August non-farm payrolls were revised down to 136,000 (from 173,000 initially). It was the first time since mid-2013 that US jobs grew at such a slow pace in two consecutive months. So far in 2015 US non-farm payrolls grew at an average of 198,000 per month, significantly down from the average growth pace of 260,000 per month last year.
The central bank of Indonesia announced on Thursday (17/09) that it the country’s key interest rate (BI rate) at 7.50 percent, while maintaining the deposit facility rate at 5.50 percent and the lending facility rate at 8.00 percent. According to Bank Indonesia (BI) this decision is consistent with its efforts to push inflation towards the target corridor of 4±1 percent in both 2015 and 2016. In addition, the decision is also part of Bank Indonesia’s measures to anticipate possibilities of a Fed Fund Rate (FFR) hike.
After a real roller coaster ride, Indonesia’s benchmark stock index (Jakarta Composite Index) climbed 0.35 percent to 4,446.20 points at the end of the trading week. The majority of key stock indices across the globe tended to strengthen on Friday after a week characterized by severe volatility amid concern about the economic situation in China.
During Bank Indonesia’s Board of Governors it was decided on 18th August 2015 to hold the BI Rate at 7.50 percent, while maintaining the Deposit Facility rate at 5.50 percent and the Lending Facility rate at 8.00 percent. The decision is consonant with efforts to control inflation within the target corridor of 4±1 percent in 2015 and 2016. In the short term, Bank Indonesia (BI) is focused on efforts to stabilize the rupiah amid uncertainty in the global economy, by optimizing monetary operations in the rupiah and the foreign exchange market.
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