| Source: Bank Indonesia

Governor of Indonesia’s central bank (Bank Indonesia) Agus Martowardojo said that the rupiah will be stronger after the second quarter has finished as there is a traditional higher need for foreign currencies - brought on by dividend repatriation and overseas loan repayments - in the middle of the year. Furthermore, Indonesia’s trade balance, recording a deficit of US$1.96 billion in April 2014, is still a concern as well as political uncertainties about the outcome of Indonesia’s presidential election scheduled for 9 July 2014. This has become a tight race between Joko ‘Jokowi’ Widodo and Prabowo Subianto. Lastly, the rupiah is susceptible to the impact of violence in northern Iraq as it leads to higher global oil prices, thereby placing pressure on financial balance sheets of those countries that import oil (such as Indonesia).

Bloomberg reported that Indonesia’s bonds declined, pushing the ten-year yield to a three-month high on speculation that prospects of increased government debt sales will prompt investors to seek higher returns on existing notes. In a plenary session of Indonesia’s House of Representatives (DPR) on Wednesday evening (18/06), the parliament approved the government’s proposed revised state budget of 2014 (RAPBN-P 2014). This included raising the budget deficit from 1.69 percent of the country’s gross domestic product (GDP) to 2.4 percent. This implies that sovereign borrowings are set to rise.

Furthermore, Indonesia’s Finance Ministry will auction IDR 8 trillion (USD $672 million) of securities on Tuesday (24/06), after an Islamic bond offering fell short of target last week (when the Indonesian government rejected bids for higher yields).

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