Stock markets in Asia are experiencing rough weather as investors pull funds out of emerging markets. By 11:25 am local Jakarta time, Indonesia's benchmark Jakarta Composite Index had plunged 1.11 percent to 4,344.69 points, while the rupiah had depreciated 0.54 percent to IDR 14,068 per US dollar (Bloomberg Dollar Index). Investors are seeking safe(r) haven assets as the Federal Reserve is expected to raise its key Fed Fund Rate (for the first time in almost a decade) at its next FOMC meeting (scheduled for 15-16 December).
The US Federal Reserve's benchmark interest rate has been held near zero percent since 2008 when a global crisis disrupted markets. In combination with the US quantitative easing (QE) policies, US monetary policy boosted stocks around the globe, particularly the more attractive (yet riskier) emerging market assets (including Indonesian stocks and the rupiah). However, with the QE policies having ended and US interest rates set to become more attractive, capital flows reverse.
Most investors and analysts expect the Federal Reserve to raise its policy rate at the December meeting as US employment and inflation are heading in the right direction. Meanwhile, Federal Reserve officials have repeatedly emphasized to be keen on raising its policy rate before the year-end (in an effort not to surprise markets). A modest hike of 0.25 percentage points is expected.
Meanwhile, global oil prices have weakened to its weakest level in seven years on concern about the persistent oversupply after the OPEC abandoned its output ceiling. Low oil prices are a bad signal for other commodity prices (and global economic activity). This is a particular concern for those countries that rely on commodity exports (such as Indonesia).
Regarding the rupiah, additional pressures stem from relatively high local US dollar demand for Indonesian firms' year-end global bond payments.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 1.00 percent to IDR 14,076 per US dollar on Monday (14/12).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia