A sigh of relief was breathed when US jobs growth data, released at the end of last week, were below market estimates hence triggering expectation that the US Federal Reserve will postpone an interest rate hike until somewhere next year. This then led to capital inflows into emerging markets this week. The Indonesian rupiah appreciated 5.6 percent and the benchmark Jakarta Composite Index strengthened 6.6 percent between Monday and Wednesday as investors were again attracted by higher yielding assets in emerging markets. Moreover, capital outflows from Indonesia over the past couple of months have made Indonesian assets bargains (technical rebound).

Indonesian assets may also be supported by recently unveiled economic policy packages designed by the central government and the central bank (Bank Indonesia). These efforts show that authorities are serious about combating capital outflows and boost economic growth.

However, there are still plenty of matters that put pressure on the value of the rupiah:

The International Monetary Fund (IMF) cut its forecast for global economic growth in 2015 and 2016 by 0.2 percentage point mainly due to slowing growth in emerging markets. Moreover, the Washington-based institution is concerned about the high amount of foreign (US dollar-denominated) debt in emerging markets. Emerging market currency depreciation exacerbates this debt position.

Sluggish global growth, particularly slowing growth in China, causes low commodity prices. Being a major commodity exporter, Indonesia is highly susceptible to the effects of low commodity prices.

Indonesia still has a wide current account deficit (estimated at nearly 3 percent of gross domestic product in 2015).

Although there may not be a Fed Fund Rate hike in 2015 (or perhaps not even in early 2016) somewhere down the road the Federal Reserve will have to raise interest rates. Since mid-2013 we have seen the impact of (looming) monetary tightening in the world's largest economy on the performance of Indonesian assets. As such, once this current temporary sigh of relief  has waned, pressures will rise again.

Indonesia's foreign exchange reserves have fallen significantly in 2015 due to Bank Indonesia's efforts to defend the rupiah.

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 1.82 percent to IDR 13,809 per US dollar on Thursday (08/10) as it still had to absorb earlier developments.

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia