Earlier this week, Wednesday 27 June 2018 was declared a public national holiday by the Indonesian government through Presidential Decision No. 48/2018. Reason being the local elections that are held in 171 regions across Indonesia. A free day would provide more opportunities for workers to cast their vote. Earlier, the Indonesia Stock Exchange had already confirmed that it would operate as usual on this regional election day.
However, regional election day does affect some activities of the central bank of Indonesia (Bank Indonesia). One being the monthly monetary policy meeting. Bank Indonesia announced that its Board of Governor's meeting, which was initially scheduled for Wednesday-Thursday (27-28 June 2018), has been moved to Thursday-Friday (28-29 June 2018). In other words, the meeting has been delayed by one day.
It means that market participants have to wait one more day before being able to take in monetary decisions. Bank Indonesia's June policy meeting is closely followed by markets because there is plenty of reason to expect another 25 basis points (bps) interest rate hike (thus lifting the benchmark seven-day reverse repo rate to 5.00 percent). Monetary tightening would be the result of rupiah weakness amid broad-based US dollar strength. Capital outflows from emerging markets are currently being brought about by concern over the global trade war.
In May 2018 Bank Indonesia had already implemented two rate hikes, 25 bps each (one in the regular monthly policy meeting and one in an ad hoc meeting). These decisions managed to support the rupiah in late-May and early June. What also calmed markets was that newly inaugurated Bank Indonesia Governor Perry Warjiyo's emphasized that he is eager to stay ahead of the curve (meaning he does not want to sit and wait for Federal Reserve decisions before taking action). However, after initially appreciating in early June, the rupiah came under major pressure again ever since.
Other information that is being awaited by markets is news regarding the relaxation of the loan-to-value (LTV) ratio as well as other policies to help boost the nation's property sector. Because an interest rate hike would make borrowing more costly for consumers, the central bank earlier announced that it plans to ease regulations regarding down payments in the property sector.
On Tuesday (26/06) the Indonesian rupiah rate depreciated 0.14 percent to IDR 14,179 per US dollar (Bloomberg Dollar Index). Meanwhile, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.41 percent to IDR 14,163 per US dollar.
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia