Troubles continued on Tuesday (16/12) for emerging markets. Currencies and stocks in the Asia-Pacific were mostly down amid a significant interest rate hike by Russia’s central bank, falling oil prices, and expected weakening of China’s manufacturing activity. Indonesian stocks were down 1.81 percent to 5,014.53 points by 11:20 am local Jakarta time, while the rupiah had depreciated 0.88 percent to 12,825 per US dollar by the same time according to the Bloomberg Dollar Index.
Currently Indonesia’s rupiah and stocks are feeling the negative impact of economic recovery in the USA (giving the US dollar bullish momentum as it will not take long before the US Federal Reserve decides to raise its key Fed Fund rate). The rupiah is currently at its lowest level since 1998 (at a time when the country was just starting to recover from the Asian Financial Crisis that hit Asia in 1997). Similar to India and Brazil, Indonesia is hit hard by capital outflows triggered by normalization of the Federal Reserve’s monetary policy (involving last year’s tapering of monetary stimulus known as quantitative easing and looming higher interest rates in the first half of 2015) as these countries run a wide current account deficit (implying that they rely on foreign funding). Today (16/12) and tomorrow, the Federal Reserve will meet to discuss the current economy and its future monetary policy.
Furthermore, strong US dollar demand by local Indonesian companies before the year-end (for overseas debt repayments) places additional pressures on the rupiah exchange rate.
The rupiah is expected to continue the current depreciating trend through the first half of 2015.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 2.39 percent to IDR 12,900 per US dollar on Tuesday (16/12).
Another important (external) factor that contributes to slumping stock markets and currencies in emerging Asia is the severe depreciation of the Russian rouble. Russia’s central bank hiked its key interest rate from 10.5 percent to 17 percent yesterday after the rouble suffered its worst decline since 1998 (depreciating about 10 percent).
Meanwhile, Japan’s yen climbed to a five-week high as uncertainty about the duration of falling oil prices led to yen-buying.
Update 13:30 Tuesday (16/12)
After sharp rupiah depreciation this morning, the currency rapidly recovered after Indonesia’s central bank (Bank Indonesia) intervened to stabilize the currency. The bank is also purchasing government bonds in the secondary market. At 13:35 pm local Jakarta time, the rupiah exchange rate had appreciated 0.01 percent to 12,713 per US dollar according to the Bloomberg Dollar Index.