Expectation of a Fed Fund Rate hike before the year-end rose as several Fed officials have been saying (over the weekend) that the decision not to raise US interest rates in September was a close-call and that the hike may occur at the next policy meeting. Higher interest rates in the USA, the world’s largest economy, will most likely cause severe capital outflows from emerging markets such as Indonesia.

Moreover, the Asian Development Bank (ADB) cut its outlook for Indonesia’s economic growth in 2015 and 2016. In an update of its flagship publication, the Asian Development Outlook 2015 (released today), the ADB cut most of its forecasts for economic growth in the Asian region due to softer growth in China and India. Reduced Chinese demand for energy, metals and other commodities will impact negatively on commodity-focused export markets in Southeast Asia including Indonesia. Indonesia's economic growth projection for 2015 was cut from 5.5 percent (y/y) to 4.9 percent (y/y), while next year’s projection was cut from 6.0 percent (y/y) to 5.4 percent (y/y).

By 15:09 pm local Jakarta time, the rupiah had depreciated 0.19 percent to IDR 14,514 per US dollar according to the Bloomberg Dollar Index. Meanwhile, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.25 percent to IDR 14,486 per US dollar on Tuesday (22/09), a fresh 17-year low.

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

Regarding the economic slowdown of China, investors will now focus on the country’s September manufacturing activity data due this Wednesday. The August reading had been the lowest in over six years.

There seems no end to negative news about China as Standard & Poor’s stated that China’s banks are facing growing risks due to rising bad loans and turmoil in the real-estate sector. However, the Shanghai Composite Index was still able to rise 0.92 percent today.

Meanwhile, it was also reported in Indonesian media that Finance Minister Bambang Brodjonegoro proposed to the House of Representatives (DPR) to revise the government’s economic growth target from 5.5 percent (y/y) to 5.3 percent (y/y) in the draft 2016 State Budget as this figure would be more realistic given the domestic and global economic context.

The central bank of Indonesia has been busy defending the rupiah. One of the ways to support the rupiah is by using the foreign exchange reserves. However, some concern emerged recently as the foreign exchange reserves have been dropping as a result of this strategy. Today, Bank Indonesia Governor Agus Martowardojo said that the level of Indonesia’s foreign exchange reserves is still safe currently at around USD $103 billion (equivalent to about six months of imports). Finance Minister Brodjonegoro added that the level of foreign exchange reserves are safe as long they cover at least six months of imports. This implies that the country’s forex reserves can drop to USD $89 billion before authorities become nervous.

Foreign Exchange Reserves Indonesia (in USD million):

Today it was also announced that Indonesia plans to borrow USD $4.2 billion from the ADB and World Bank in order to raise foreign exchange reserves and plug a budget deficit.

On Monday evening, during a meeting with the DPR’s Budget Commission, Bank Indonesia said it revised the bottom line projection for the rupiah rate for 2016 to IDR 13,700-13,900 per US dollar from IDR 13,400-13,900 previously.

When will the Federal Reserve raise its Fed Fund Rate?

Voting possible:  -


  • Next Year (39.2%)
  • In December (36.5%)
  • In October (12.2%)
  • I don't know (12.2%)

Total amount of votes: 181