Currency Indonesia: Why is the Rupiah Strengthening Markedly Today?
The Indonesian rupiah is appreciating markedly on Wednesday (10/02). By 12:30 pm local Jakarta time, Indonesia's currency had appreciated 1.62 percent to IDR 13,391 per US dollar based on the Bloomberg Dollar Index, a three-month high. Today, most emerging currencies in Asia are appreciating against the US dollar ahead of Fed Chair Janet Yellen's testimony in US Congress this week. Other factors that support strong rupiah appreciation are speculation that Indonesia will attract investors due to accelerating domestic economic growth and the move of Japan's central bank to introduce negative interest rates.
Last week Statistics Indonesia announced that the nation's economy expanded 5.04 percent (y/y) in the fourth quarter of 2015, beating analyst expectations and significantly accelerating from the growth pace in the preceding quarter. This gives rise to expectation that 2016 will finally be the year in which Indonesia sees accelerating GDP growth after full-year 2015 growth eased to a six-year low of 4.79 percent (y/y).
With inflation and the current account deficit under control, Bank Indonesia could decide to ease monetary policy further this year (hence providing more ammunition for economic growth). In its January policy meeting Indonesia's central bank had already cut its key BI rate by 0.25 percent to 7.25 percent.
Meanwhile, negative interest rates in Japan should boost demand for Indonesian assets. Foreign investors pumped IDR 9.5 trillion rupiah (approx. USD $704 million) into Indonesian local-currency sovereign debt last week, after Japan's central bank introduced negative interest rates on 29 January 2016.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 1.1 percent to IDR 13,538 per US dollar on Wednesday (10/02).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia