The context is different today. There is more clarity about the ending of the US quantitative easing program as the Federal Reserve announced to start to taper in December 2013. For the investor community, such clarity is highly important. Moreover, the economy of Indonesia looks in much better shape now. The current account deficit has eased from USD $9.9 billion (4.4 percent of GDP) in the second quarter of 2013 to USD $4.0 (1.98 percent of GDP) in the fourth quarter of 2013. Although January 2014 showed another trade deficit, the central bank of Indonesia is positive that the current account balance will be kept at a sustainable level of below three percent of GDP in 2014.

 Easing Tensions in Ukraine Support the Indonesian Rupiah Exchange Rate

Meanwhile, inflation, which accelerated to nearly nine percent last year after the government increased prices of subsidized fuels, eased from 8.22 percent in January 2014 (year-on-year) to 7.75 percent in February 2014 (yoy). As a result, capital inflows have returned. In 2014, the rupiah is one of the best performing currencies against the US dollar, appreciating around 4.6 percent (year-to-date).


Inflation in Indonesia:


Month  Monthly Growth
          2013
 Monthly Growth
          2014
January          1.03%          1.07%
February          0.75%          0.26%
March          0.63%  
April         -0.10%  
May         -0.03%  
June          1.03%  
July          3.29%  
August          1.12%  
September         -0.35%  
October          0.09%  
November          0.12%  
December          0.55%  
Total          8.38%          1.33%
    2008   2009   2010   2011   2012   2013
Inflation
(annual percent change)
   9.8    4.8    5.1    5.4    4.3    8.4

Source: Statistics Indonesia

As tensions in the Ukraine have eased after Russian President Putin said on Tuesday (04/03) that he saw no immediate need to invade eastern Ukraine, the rupiah is expected to continue its appreciating trend against the US dollar. The political tensions in the Ukraine previously resulted in high demand for safe havens, such as the US dollar, gold and yen. Today, the US dollar tended to depreciate against most currencies in the Asia Pacific.

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.57 percent on Wednesday to IDR 11,580 per US dollar.

| Source: Bank Indonesia

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