Both external and internal factors caused the weak performance of the rupiah on Friday (02/01). Economic data from the USA signal structural improvement of the world’s largest economy, implying that the US Federal Reserve will soon decide to raise its key interest rate (perhaps in the first half of 2015). This move is expected to trigger capital outflows from emerging economies, including Indonesia. According to data released on 31 December 2014, US jobless claims in 2014 fell to the least in 14 years, while an index of November pending home sales increased more than was estimated by analysts.

Meanwhile, macroeconomic data from Indonesia was disappointing. Inflation accelerated to 8.36 percent year-on-year (y/y) in December 2014 due to the recent subsidized fuel price hike, while the country posted an unexpected USD $425 million trade deficit in November (after a surplus of USD $20 million in the previous month).

Furthermore, Indonesia’s manufacturing activity contracted for the third consecutive month in December according to the HSBC Markit Purchasing Managers’ Index), touching its weakest level since early 2011 amid a decline in output and export orders.

Lastly, US dollar demand from local Indonesian companies is expected to increase as Bank Indonesia has set new rules for hedging offshore loans, effective from 1 January 2015.

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.27 percent to IDR 12,474 per US dollar on Friday (01/01).

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia