Higher BI Rate Causes Indonesia's Rupiah and Stock Index to Fall
Indonesia's Jakarta Composite Index (IHSG) started Tuesday's trading day (12/11) slightly in the red. However, after the central bank of Indonesia (Bank Indonesia) announced to have raised its benchmark interest rate (BI rate) by 25 bps to 7.50 percent, the IHSG quickly plunged. The interest rate hike is considered as a sign that Bank Indonesia is still concerned about the nation's macroeconomy, particularly Indonesia high inflation (8.32 percent yoy in October 2013). The index fell 1.38 percent to 4,380.64 points.
Although the Euro appreciated against the US dollar after positive economic data from Germany and Italy, it was unable to offset the US dollar's dominance over emerging market currencies. Market participants continue to be concerned about the Federal Reserve's possible toning down of its monthly USD $85 billion stimulus program (quantitative easing). These concerns had a negative impact on the currencies of emerging markets, including the Indonesian rupiah exchange rate. The higher BI rate was unable to support the rupiah. In fact, it worsened the decline. The rupiah depreciated 0.80 percent against the US dollar on Tuesday (12/11).
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