The Indonesian rupiah is slightly weakening on Monday (12/10) as market participants are responding to Federal Reserve Vice Chairman Stanley Fischer's remarks in Lima (Peru) where he attended the latest IMF meeting as well as a banking seminar. Fischer said that there could still be a Fed Fund Rate hike before the end of the year, provided that US economic data (and global circumstances) allow such a move. Based on the Bloomberg Dollar Index, the rupiah had depreciated 0.02 percent to IDR 13,414 per US dollar by 12:15 pm local Jakarta time.
Earlier this morning the rupiah was down around 0.50 percent against the greenback, in line with the weakening of most other Asian emerging market currencies. Federal Reserve Vice Chairman Stanley Fischer added uncertainty to markets over the weekend after saying that the Federal Reserve may still raise US interest rates later this year provided that US macroeconomic data are good. However, at the same time, he acknowledged that slowing US jobs growth, low US inflation and international developments (China's slowdown) are concerns and crucial for the timing of higher interest rates.
The Federal Reserve has always emphasized that it targets an inflation pace of 2 percent (y/y) and "maximum employment" before deciding to raise interest rates. Regarding US inflation, Fischer is optimistic that it will likely move back toward the Federal Reserve’s two percent target as the transitory effects of the oil price and US dollar fade. Regarding US employment, Fischer is less rosy. Although the US unemployment rate stands at 5.1 percent and prospects for improvement look good, he said the unemployment figure does not fully capture current labor market conditions in the USA as the labor force participation rate remains low, while there are also many Americans who want to work full-time but only manage to obtain part-time jobs. Moreover, September's non-farm payrolls were rather disappointing (adding only 142,000 new jobs to the economy).
At the 16-17 September policy meeting, the Federal Reserve decided to keep its key interest rate at near-zero levels. Last week's published FOMC minutes show that an interest rate hike in combination with China's economic slowdown was considered a risk to US macroeconomic growth and inflation (an even stronger US dollar would weaken US export performance).
Last week, emerging market currencies and stocks gained tremendously as markets responded to the perceived delay in higher US interest rates. However, it also shows the high degree of vulnerability of these markets to US monetary policy tightening.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.41 percent to IDR 13,466 per US dollar on Monday (12/10).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
Meanwhile, the benchmark Jakarta Composite Index was up 0.82 percent to 4,626.81 points by the same time.