The weakening Dow Jones Index on Wednesday (12/02) caused negative market sentiments in Asia the following day. Most Asian indices, including Indonesia's Jakarta Composite Index (IHSG), were down. Not even the announcement that Bank Indonesia decided to maintain its benchmark interest rate (BI rate) at 7.50 percent was able to push the IHSG back in the green zone. Investors probably already anticipated the central bank's decision as it was in line with the market's expectation.
Market participants see no need for a higher interest rate climate in Indonesia as the country's macroeconomy is already improving (evidenced by an easing current account deficit, stronger rupiah, rising foreign exchange reserves and slowly easing inflation). That is what makes Indonesia's case different from, for example, Turkey or India where interest rates have been raised earlier this year to safeguard financial stability. Last year, Indonesia was one of the first countries to react to the new reality - the looming end of the US quantitative easing program - by raising the BI rate gradually from 5.75 percent in June to 7.50 percent in November in order to curb high inflation and limit capital outflows. Due to this early monetary tightening it can be stated that Indonesia is now in a better position than many other emerging economies.
However, this did not prevent the IHSG from falling 0.10 percent to 4,491.66 points on Thursday's trading day (13/02).
Also the continuation of the appreciating Indonesia rupiah exchange rate could not push the IHSG into green territory. In the Bloomberg Dollar Index, the rupiah appreciated 0.89 percent to IDR 11,980 per US dollar due to the positive assessment of Bank Indonesia regarding the country's macroeconomy, particularly the improved exports. Bank Indonesia said that the current account deficit eased sharply to 1.98 percent of GDP by the end of 2013. In the second quarter of 2013, this deficit had been at a record high of USD $9.9 billion (4.4 percent of GDP).
The central bank's Jakarta Interbank Spot Dollar Rate (JISDOR) appreciated 0.35 percent to IDR 12,073 per US dollar on Thursday (13/02).