In line with other Asian emerging assets, Indonesian stocks and the rupiah strengthened on Friday (23/10). The positive performance is mainly on the back of more stimulus measures by key central banks. Yesterday (22/10), Mario Draghi, Head of the European Central Bank (ECB), said the ECB may increase stimulus measures at the December policy meeting to raise inflation and boost the economy of the Eurozone.
Although the ECB kept its policy steady after the October policy meeting, Draghi's statement caused expectation that the ECB will ramp up its quantitative easing program before the year-end, implying that more euros will flood the market. Meanwhile, there remains expectation that the Federal Reserve will maintain interest rates in the range of 0.0-0.25 percent. The Federal Reserve will meet twice more this year (on 27-28 October and 15-16 December). Lastly, the central bank of Japan may also add stimulus due to ongoing troubles in the economy of Japan. Together, it makes higher-yielding (yet riskier) emerging market assets more attractive.
As a result, the benchmark Jakarta Composite Index (IHSG) rose 1.50 percent to 4,653.15 points, a two month high.
Jakarta Composite Index (IHSG):
The third quarter of 2015 was the worst quarter for emerging markets in four years due to severe concerns about the economic slowdown of China and looming higher US interest rates but the fourth one may be a good one.
Indonesia's five economic stimulus packages that have been released in September-October may also add positive sentiments. Yesterday, the government introduced a new tax incentive that makes it more attractive for local companies to revalue their fixed assets.
Meanwhile, based on the Bloomberg Dollar Index, the rupiah appreciated 0.14 percent to IDR 13,621 per US dollar. Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 1.09 percent to IDR 13,491 per US dollar on Friday (23/10).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia