Indonesian Rupiah Starts Weaker as US Dollar Rises after Inflation Data
The Indonesian rupiah started the new trading week on a negative note. By 10:45 am local Jakarta time, the rupiah had depreciated 0.17 percent to IDR 13,181 per US dollar according to the Bloomberg Dollar Index. The primary reason for this performance is that the US dollar has strengthened globally after Federal Reserve Chair Janet Yellen stated that she is convinced that the world will see the first US interest rate hike in almost a decade before the end of the year (provided that US economic data continue to improve).
Yellen made these statements in a speech in Rhode Island. The Federal Reserve is particularly looking at improvements in labor market conditions and inflation before it will hike interest rates.
After reading the minutes of the Federal Reserve’s latest policy meeting (FOMC), an interest rate hike in June remains highly unlikely but most Federal Reserve officials are in favour of higher US interest rates in 2015. As such, economists and analysts expect to see the hike in September. As an interest rate hike will make all costs throughout the US economy higher (from car loans to mortgages), a too early or too significant rate hike could jeopardize the economic recovery of the USA. Therefore, economists expect that the Federal Reserve will pursue a more gradual monetary tightening path.
The US Labor Department announced late last week that the Consumer Price Index (excluding food and energy), climbed 0.3 percent in April 2015, above analysts’ estimations. This is the largest increase in core inflation since January 2013 (after a growth of 0.2 percent in March). This solid core inflation growth fuels expectation that the Federal Reserve keeps committed to an interest rates hike this year.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.27 percent to IDR 13,186 per US dollar on Monday (25/05).
Indonesian Rupiah versus US Dollar (JISDOR):
| Source: Bank Indonesia
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