Rupiah Falls on Fed Policy; Market Waiting for Indonesia's Economic Data
The Indonesian rupiah exchange rate depreciated 0.31 percent to IDR 11,447 per US dollar on Thursday (27/03) based on the Bloomberg Dollar Index. The currency's strong performance in February and the first half of March, supported by Indonesia's easing current account deficit and inflation, has met resistance due to global concern about the aggressive US Federal Reserve monetary tightening (winding down its quantitative easing program by another chunk of USD $10 billion as well as possible US interest rate hikes in 2015 and 2016).
Visible in the graph below is that the rupiah rate started to depreciate against the US dollar from 17 March 2014. It has been a normal phenomenon in recent times that shortly ahead of a Federal Reserve FOMC meeting market participants prefer to wait and see for results of the meeting, thus placing downward pressure on the rupiah. That is why the rupiah started to depreciate from 17 March 2014 although the meeting took place on 18-19 March. When on Wednesday 19 March 2014 Chairwoman of the Federal Reserve Janet Yellen indicated that monetary tightening in the US will be more aggressive, it led to capital outflows from emerging markets, including Indonesia.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.26 percent on Thursday (27/03) to IDR 11,438 per US dollar.
On the other hand, Indonesia's economic fundamentals seem to be in a fine condition in 2014. Inflation, which accelerated to nearly nine percent (yoy) in 2013 (after the government raised prices of subsidized fuels) has eased to 7.75 percent (yoy) in February 2014 and is expected to ease further in the next couple of months. Meanwhile, the country's current account deficit (which measures trade and financial flows including interest and dividend payments, and is therefore used to assess a nation’s resilience to a crisis), improved markedly after hitting a record high of 4.4 percent of GDP in the second quarter of 2013. However, market players will be highly interested to study Indonesia's new economic data (released on Tuesday 1 April 2014) to see whether economic growth has indeed continued. These data include March 2014 inflation, February trade data and March manufacturing.