In line with the performance of other Asian emerging currencies, Indonesia's rupiah exchange rate appreciated on Monday (12/01) as the fall in US wages (released late last week) caused speculation that the Federal Reserve will - for now - delay its plan to start raising US borrowing costs. Despite solid growing US non-farm payrolls in December 2014, US wages (average hourly earnings) fell the most in eight years. Indonesia’s rupiah appreciated 0.38 percent to IDR 12,599 per US dollar according to the Bloomberg Dollar Index.
Seeing the latest economic data on US jobs, analysts now expect that the US central bank will not raise its key interest rate too soon. June 2015 is regarded as the most suitable timing for the Fed to raise borrowing costs. As such, the US dollar may in fact feel some depreciating pressures in the short-term (but this depends heavily on forthcoming US economic data).
The rupiah was supported by Indonesia's 10-year bond yields which slipped by approximately six basis points to 7.681 percent on Monday. Indonesia raised USD $4 billion through a sovereign US dollar-denominated bond sale last week with investors submitting bids for 4.8 times the amount offered.
On 15 January 2015, Indonesia’s central bank (Bank Indonesia) will hold its next Board of Governors’ Meeting to discuss the country’s interest rate environment. The institution is expected to keep its key rate (BI rate) at 7.75 percent. Inflation accelerated sharply (to 8.36 percent y/y in December 2014) as a result of higher subsidized fuel prices implemented in November 2014. However, due to falling global oil prices (in combination with another fuel policy reform), the postponement in increasing the country’s electricity tariffs, and the moderating effects of the November fuel price hike, Indonesia’s inflation rate is expected to ease markedly in the period ahead (without needing a higher BI rate).
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.57 percent to IDR 12,568 per US dollar on Monday (12/01).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
Meanwhile, emerging market stocks mostly fell on Monday as Chinese shares declined and lower oil prices dragged down shares of energy companies. Indonesia’s benchmark Jakarta Composite Index fell 0.55 percent to 5,187.93 points.