Indonesia Stock & Rupiah Update: Will the Federal Reserve Raise Interest Rates?
While most Asian stock indices were mixed, Indonesia’s benchmark Jakarta Composite Index rose 0.69 percent to 4,390.37 points on Monday (14/09) with foreign investors recording a net buy of IDR 91.2 billion (approx. USD $6.5 million). Meanwhile, ahead of a crucial Federal Reserve meeting, the Indonesian rupiah depreciated 0.08 percent to IDR 14,333 per US dollar according to the Bloomberg Dollar Index.
Stock trading on the Indonesia Stock Exchange was calm as investors are in a “wait & see mode” ahead of the US central bank’s FOMC meeting later this week. The 0.69 percent rise of Indonesian stocks today may be due to the persistence of a technical rebound as there are currently few positive sentiments that can boost the value of Indonesian stocks. Investors may have made a late positive response to the Indonesian government’s new economic policy package that was unveiled last week, or, because of optimism that Indonesia’s trade surplus will show another surplus in August, or, slightly higher stock indices on Wall Street on Friday (11/09).
Jakarta Composite Index (IHSG):
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.11 percent to IDR 14,322 per US dollar on Monday (14/09).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
To Raise US Interest Rates, or Not to Raise Interest Rates, that is the Question
At the start of the new week investors are highly focused on the Federal Reserve’s two day policy meeting (FOMC), scheduled for 16-17 September. Analysts and investors are split on whether the US central bank will raise its Fed Fund Rate at this occasion (the last time the Fed hiked its key rate was in June 2006). Although recent US macroeconomic data seem solid enough to justify a small interest rate increase, such a move could jeopardize the US economy as the strong US dollar becomes even stronger (hence negatively affecting the country’s export performance).
Meanwhile, global markets are still in turmoil due to concern about China’s hard landing (which subsequently has been causing highly volatile markets across the globe). Investors seem to lack confidence that Chinese policymakers have the ability to boost economic growth in the world’s second-largest economy. Concerns heightened after the release of disappointing Chinese industrial output and fixed investment data over the weekend. China’s industrial output rose 6.1 percent (y/y) in August, below forecasts of 6.6 percent. Meanwhile, the country’s fixed-asset investment climbed at the slowest pace in 15 years. Moreover, there surfaced reports that China’s securities regulator imposed penalties on five brokerages as they failed to conduct sufficient inspection of clients. China’s benchmark Shanghai Composite Index fell 2.67 percent on Monday (14/09), with brokerage stocks in particular tumbling drastically.
Japan’s Nikkei 225 declined 1.63 percent on Monday as the US dollar weakened against both the yen and the euro ahead of the FOMC meeting. Shares of mobile carrier Softbank Corp fell 5.5 percent, NTT Docomo plunged nearly 10 percent while KDDI Corp declined 8.6 percent after Japan’s Prime Minister Abe requested for lower phone rates in an effort to boost consumer spending in the world’s third-largest economy (reportedly Japan has the world’s highest mobile phone bills). Meanwhile, Japan's industrial production declined by a seasonally adjusted 0.8 percent in July from the preceding month, revised from the 0.6 percent decline reported earlier.
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