Indonesia’s rupiah exchange rate weakened on Friday’s trading day (30/01) in line with the performance of several other Asian currencies. South Korea’s won fell on strengthening expectations of an interest rate cut and Japan’s yen declined on the slowdown of government bond sales. For market participants these were reasons to purchase US dollars at the expense of the rupiah. Indonesia’s currency had depreciated 0.41 percent to IDR 12,633 per US dollar based on the Bloomberg Dollar Index at 2:35 pm local Jakarta time.
As such, the positive sentiments that stem from the US Federal Reserve’s decision to leave its interest rate environment unchanged were undone. Earlier this week, the Federal Reserve’s open market committee announced (after its two-day meeting) that interest rates remain at 0.0 - 0.25 percent. Fed Chairwoman Janet Yellen added that she needs to see evidence that US inflation returns to the 2 percent (y/y) target before rates can be raised. Despite low inflation, the Fed confirmed that the US economy’s growth is solid (including new jobs and a decreasing unemployment rate).
Analysts disagree about the timing of higher US interest rates as some see a sooner-than-expected rate increase in June, while others are betting on an increase near the end of the year. Either way, it will still take a couple of months before the Fed raises its key rate thus giving the rupiah some ammunition to appreciate on the short-term.
However, the market is also currently in a ‘wait and see’ mode before Statistics Indonesia releases several key economic data at the start of next week. Particularly the country’s January 2015 inflation rate and December 2014 trade balance are eagerly being awaited. Inflation is expected to have eased from 8.36 percent (y/y) in December due to lower fuel prices, while the country’s central bank (Bank Indonesia) expects to see a limited trade surplus (USD $100 million) in the last month of 2014. A surplus would mean that the country’s current account deficit gets the opportunity to somewhat improve at the year-end. In 2013, Indonesia had a current account deficit of 3.3 percent of GDP. This is estimated to have improved to 3 percent of GDP in 2014. For investors the current account deficit is an important statistics as it signals that the country relies on foreign funding. This makes the country vulnerable to capital outflows in times of global shocks.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.88 percent to IDR 12,625 per US dollar on Friday (30/01).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
Meanwhile, Indonesia’s benchmark stock index (Jakarta Composite Index) had climbed 0.50 percent to 5,288.81 by 3:00 pm local Jakarta time. The index felt the positive impact of rising stock indices on Wall Street on Thursday (29/01).