There are several reasons why market participants are reducing their position. Firstly, a report released last week showed that US initial jobless claims increased by 14,000 to a seasonally adjusted 281,000, meaning that it remained at historically low levels that are consistent with US job growth and suggesting that US labor markets remain solid. An improving US job market and US inflation are the two key indicators for the Federal Reserve to start raising US interest rates. An US interest rate hike is expected to result in capital outflows from emerging markets such as Indonesia.

Secondly, Indonesia’s foreign exchange reserves fell by USD $3.9 billion to USD $111.6 billion at the end of March 2015 (from the preceding month) as the central bank used part of the foreign exchange reserves to support the rupiah.

Thirdly, on Monday (13/04) the World Bank released its latest East Asia Pacific Economic Update in which the Washington-based institution downgraded its economic growth forecast for developing East Asia & China to 6.7 percent year-on-year (y/y) in 2015 and 2016 from its previous assumption of 6.9 percent growth (y/y) in 2015 and 6.8 percent (y/y) in 2016.

Lastly, investors prefer to wait & see for the results of tomorrow’s Board of Governor’s Meeting before purchasing Indonesian assets. In this meeting, Bank Indonesia will discuss the country’s interest rates and it will shed light on its view upon the current macro-economy of Indonesia. It is assumed that the central bank will maintain its key interest rate (BI rate) at 7.50 percent as inflation has shown a moderating trend. In March 2015, Indonesian inflation stood at 6.38 percent (y/y).

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.27 percent to IDR 12,945 per US dollar on Monday (13/04).

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia