Investors are concerned that economic growth of Indonesia may continue to slow in 2015 (after having slowed to a five-year low of 5.02 percent in the preceding year). Although the Indonesian government still upholds its 5.7 percent (y/y) growth target for this year, most analysts agree that this figure is too ambitious. Moreover, international institutions have downgraded their forecasts for economic growth of Indonesia. For example, the World Bank cut its forecast to 5.2 percent (y/y) in 2015 in its latest East Asia and Pacific Economic Update (down from 5.6 percent y/y in its October 2014 Update). Investors are now eagerly awaiting the official GDP growth figure of the first quarter of 2015.

Apart from concerns about the Indonesian economy, the rupiah also depreciated in the first half of the week due to the heightened concerns about a Greek default or exit from the Eurozone. According to the Eurozone’s finance ministers Greece needs to come up with more comprehensive and detailed reforms before being allowed to obtain the remaining 7.2 billion euros in frozen bailout funds. After a meeting on Friday (24/04), Greek Finance Minister Yanis Varoufakis emphasized that Greece is willing to make compromises to reach a deal with its creditors. However, Eurogroup Chairman Jeroen Dijsselbloem stated that there remain big problems to be solved in Greece.

Contrary to other central banks, Bank Indonesia maintains a relatively high interest rate environment (BI rate at 7.50 percent) and therefore economic growth is curbed. Although the current higher interest rate environment is considered the ‘right move’ to combat inflation, the wide current account deficit, and to limit capital outflows ahead of looming higher US interest rates, market participants are concerned that economic growth will not accelerate this year.

Weak durable goods orders and manufacturing surveys were the latest weak US economic data to raise questions about the Federal Reserve's planned interest rate increase. Analysts at the Rabobank stated that weak US data will most likely result in a delay in raising the US interest rate environment (to the fourth quarter of 2015).

Markets also expect the Chinese government to provide more stimulus in an effort to boost the local economy after the country saw weaker-than-expected factory activity in April. Analysts at Barclays wrote in a report that they expect the government to step up policy easing measures in a bid to stabilize the property market, boost infrastructure investment, and lower the cost of financing the economy.


Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

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