Indonesia’s rupiah exchange rate started the week on a firm tone as the US dollar weakened amid uncertainty over the timing of higher US interest rates. Contrary to initial expectation, the latest Federal Reserve meeting (held on 17-18 March) did not indicate that there will be a quick interest rate hike in the world’s largest economy hence boosting appetite for emerging market assets. In addition, the Indonesian government and central bank (Bank Indonesia) pledged to safeguard rupiah stability.
In recent months the US dollar appreciated strongly against most currencies amid looming further monetary tightening in the USA. The rupiah even hit a 17-year low against the US dollar last week. However, US interest rates may not rise as soon as had been expected. At the latest policy meeting of the US Federal Reserve, the institution lowered its 2015 economic growth forecast and stated that inflation was still tame. Therefore, a sudden interest rate hike seems highly unlikely. Analysts now expect to see a higher benchmark Fed Fund Rate in September 2015. As a result emerging assets have become more attractive for the short term.
Today’s performance of the rupiah is in line with the performance of other emerging Asian currencies (and stocks). The Indonesian rupiah appreciated 0.78 percent to IDR 13,022 per US dollar on Monday (23/03) according to the Bloomberg Dollar Index.
Regarding domestic factors, the Indonesian rupiah is still supported by the same factors that contributed to positive market sentiments last week: Indonesia’s USD $0.74 billion February trade surplus, and the government and central bank’s statements that they will support rupiah stability. The Indonesian government announced it is to implement several reforms in an effort to support a stronger rupiah, while the central bank seems to have left its earlier stance that it feels comfortable with a weak rupiah rate as that would improve the country’s wide current account deficit.
Indonesian Finance Minister Bambang Brodjonegoro stated on Monday (23/03) that his Ministry will work together with the country’s central bank (Bank Indonesia) to strengthen rupiah stability. Brodjonegoro added that the government needs to be more serious in reducing the current account deficit, which is expected to remain at a level of about 3 percent of gross domestic product (GDP) this year.
However, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.01 percent to IDR 13,076 per US dollar on Monday (23/03).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
Meanwhile, the benchmark stock index of Indonesia (Jakarta Composite Index) fell 0.11 percent to 5,437.10 points on Monday (23/03).
Jakarta Composite Index: