Ahead of the Federal Reserve’s Federal Open Market Committee (FOMC) meeting, the Indonesian rupiah exchange rate depreciated 1.26 percent to IDR 11,971 per US dollar based on the Bloomberg Dollar Index on Monday (15/09). Indonesia’s currency depreciated sharply ahead of the FOMC’s two-day meeting as investors are awaiting for the results on Thursday. As August US retail sales rose at the fastest pace in four months, a winding down of the US bond-buying program and looming US interest rates have resulted in a strong US dollar.
Speculation emerged that US interest rates will increase after the US bond-buying program ends by the year- end. In the forthcoming FOMC meeting it is expected that the bond-buying program will be wound down further from USD $25 billion per month currently to USD $15 billion per month. The Fed will publish results of the FOMC meeting on Thursday. Previously, the US central bank had stated that it will probably maintain low interest rates for a “considerable time” after ending the bond-buying program.
Market participants are also concerned about weak Chinese industrial production, retail sales, and asset investment. Disappointing Chinese data indicate that the world’s second-largest economy is slowing further. An economic slowdown in China is problematic for other emerging markets (including Indonesia) as it will lead to reduced exports of these emerging markets.
Furthermore, a recent report by the Bank for International Settlements (BIS) signals emerging markets’ vulnerability to capital outflows amid unprecedented stimulus by central banks and historically low volatility levels across asset classes.
Concerns also emerged as a result of new economic sanctions imposed by the European Union and USA on Russia. These sanctions and tensions between Russia and the EU and the USA pose a risk to global economic growth.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.37 percent to IDR 11,875 per US dollar on Monday (15/09).