The Indonesian rupiah exchange rate and Indonesian stocks gained on the last trading day of the week in line with the performance of other emerging markets. Indonesia’s benchmark stock index (Jakarta Composite Index, abbreviated IHGS) rose 0.09 percent to 5,216.67 points, while the rupiah appreciated 0.22 percent to IDR 12,647 according to the Bloomberg Dollar Index. The positive performance was mainly caused by speculation that the unexpected fall in US wages will keep the US central bank from raising its key interest rate soon.
The fall in US wages offset the positive sentiments caused by rising US job growth in December 2014 (non-farm payrolls grew by 252,000). Moreover, the US unemployment rate fell 0.2 percentage point to 5.6 percent (a 6.5-year low) thus getting close to the Fed’s 5.2-5.3 percent target for (end) 2015.
In addition, Charles Evans, Head of the Fed Bank of Chicago, said that there is no need for the central bank to rush to raise US borrowing costs. Besides expectation that the US will - for now - continue with its accommodative monetary policy, market participants are also expecting that China will provide monetary stimulus to boost its economy, thus supporting the strengthening of emerging market currencies on Friday (09/01).
Foreign investors, still confident about Indonesia’s economic fundamentals, recorded net buying of IDR 895.1 billion on Friday (09/01) after several days of being ‘net sellers’.
The Indonesian government raised USD $4 billion in its first US dollar-denominated bond issuance of 2015 on Friday (09/01) with yields at 4.200 percent for the 10-year notes and 5.200 percent for the 30-year notes, thus taking advantage of the still low rates environment as well as improving investor sentiment toward emerging markets since Wednesday as oil prices started to stabilize and market participants increasingly dare to bet on stimulus measures taken by the European Central Bank.
On Friday (09/01) Indonesia’s Finance Minister Bambang Brodjonegoro said that Indonesia aims to cut its budget deficit to 1.9 percent of gross domestic product (GDP) in 2015, slightly below the previous estimate of 2 percent of GDP, after the government scrapped subsidies for low-octane gasoline and introduced a fixed IDR 1,000 per liter subsidy for diesel. Public subsidy spending has been curtailed from IDR 276 trillion (USD $22 billion) in the initial 2015 State Budget to IDR 81 trillion after the fuel subsidy reform.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.71 percent to IDR 12,640 per US dollar on Friday (09/01).| Source: Bank Indonesia