Global developments that influence on the performance of emerging currencies, including the Indonesian rupiah, are geopolitical tensions between Ukraine and Russia as well as in northern Iraq and Gaza. Perhaps more importantly Federal Reserve Chief Janet Yellen said that - despite sluggish labour market recovery - US interest rates could rise sooner-than-expected (which led to the US dollar rising to a near one-year high against a basket of six-major currencies).

Domestically, the market is still concerned about the wide current account deficit of Indonesia which means that - in combination with the threat of higher US interest rates - the currency is vulnerable (similar to the Indian rupee). Indonesia’s current account deficit widened to USD $9.1 billion, or, 4.27 percent of the country's gross domestic product (GDP) in the second quarter of 2014, a widening that was larger than initially forecast. The rupiah also fell the impact of month-end corporate dollar demand.

However, emerging currencies in Asia may be supported by the European Central Bank’s (ECB) decision to pump more funds into the economy in an effort to boost sluggish growth in the Eurozone. On Friday (22/08), ECB President Mario Draghi emphasized that the central bank was prepared to respond with all its "available" tools should inflation fall further. Such accommodative monetary policies by major central banks around the globe have lifted emerging currencies as investors are able to invest ‘cheap’ money in lucrative yet riskier assets.

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.51 percent to IDR 11,714 per US dollar on Monday (25/08).

| Source: Bank Indonesia

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