Indonesian Stocks & Rupiah Expected to Strengthen Sharply Today
Stock markets in Asia as well as Asian emerging market currencies should perform well today after the US Federal Reserve left rates unchanged at its March policy meeting. Moreover, the central bank of the world's largest economy stated that it expects fewer rate hikes in the coming months (dovish outlook) as economic recovery of the USA is still fragile amid slower global growth and turmoil in world markets linked to low oil price. As a result risk sentiment improved sharply, while the US dollar suffered losses.
Today, the central bank of Indonesia (Bank Indonesia) will also announce the outcome of its two-day policy meeting. Most analysts expect a rate cut of 25 basis points to 6.75 percent as inflation is more-or-less under control (some food price inflation though), the current account balance and trade balance have been improving, while the rupiah has recently been appreciating strongly. Indonesian President Joko Widodo has been requesting Bank Indonesia to lower its key interest rate (BI rate) toward the country's inflation level (4-5 percent) to allow accelerating credit expansion in Southeast Asia's largest economy (however Indonesia's central bank is a fully independent institution). Similarly, businesses have also been requesting the central bank to lower the BI rate in order to make it cheaper to engage in business expansion.
Just after opening on Thursday (17/03), Indonesia's benchmark stock index (Jakarta Composite Index) rose 0.69 percent to 4,883.17 points. Meanwhile, the rupiah had appreciated 0.88 percent to IDR 13,150 per US dollar by 09:05 am local Jakarta time (Bloomberg Dollar Index).
The dovish standpoint of the Fed boosts risk sentiment for higher-yielding assets across Asia (supported by a weaker Japanese yen as well). By 09:10 am local Jakarta time, Japan's Nikkei 225 had climbed 1.30 percent, China's Shanghai Composite Index was up 0.47 percent, South Korea's Kospi had risen 1.17 percent, and Singapore's Straits Times Index had risen 1.10 percent.