Due to sluggish growth in the Eurozone, the European Central Bank (ECB) is set to launch a stimulus package causing sharp Euro depreciation against the US dollar. Meanwhile, market participants are eagerly awaiting the release of the Federal Reserve’s minutes of the 16-17 December meeting last month as they are searching for clues when the Federal Reserve is to raise its key interest rate. Emerging economies, including Indonesia, are expected to be hit by capital outflows after the Fed hints at a rate hike. In combination with further declining global oil prices (Brent may fall below USD $50 per barrel for the first time since 2008) investors are expected to dump riskier assets, instead seeking safe havens such as the US dollar. As a consequence, the rupiah may depreciate past the level of IDR 13,000 this quarter.

From the domestic side, there are no macroeconomic data that could provide support for the rupiah. According to the latest data, Indonesia posted a USD $426 million trade deficit in November, inflation at 8.36 (y/y) in December, while manufacturing activity touched a record low at 47.6 (HSBC manufacturing purchasing managers’ index) in December. The country is also still plagued by a wide current account deficit. On the other hand, recent fuel subsidy reforms will give the Indonesian government more room for economic and social development (such as infrastructure, healthcare, education and agriculture development).

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.58 percent to IDR 12,732 per US dollar on Wednesday (07/01).

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

Meanwhile, Indonesia’s Finance Ministry raised IDR 12 trillion (USD $948 million) in a bond offering on Tuesday (06/01), achieving its targeted despite a volatile financial market and global uncertainty. Total incoming bids were IDR 23 trillion for 3-month and 1-year T-bills, as well as 9-year and 19-year notes with weighted average yields ranging from almost 6 percent to 8.44 percent depending on maturity periods, and the highest bid-to-cover ratio was 6.63 for 3-month T-bills, followed by around 1.1 to 1.9 percent for the rest.