Today, central bank Governor Agus Martowardojo said one of the key reasons why the rupiah is strengthening is capital inflows. After warmly welcoming Indonesia's Q4-2015 GDP growth figure foreign investors seem to have regained confidence in the fundamentals of the Indonesian economy and the government's commitment to boost economic expansion. As a result, foreigners have increased investment in Indonesian (corporate and state) bonds, stocks, as well as foreign direct investment (FDI).

Martowardojo said global conditions also contribute to this recent success. Investing in Japan and the Eurozone have been made unattractive due to negative interest rates, China's economy is still plagued by concerns about a hard landing, while there is still a high degree of uncertainty about the US economy. "In this global context, Indonesia is one of the better choices for investors," the Bank Indonesia Governor said.

Another matter that supports the value of the rupiah is that Indonesia's central bank (Bank Indonesia) is not expected to cut its interest rate environment too aggressively this year as there have emerged some inflationary pressures. yesterday, Statistics Indonesia (BPS) announced that Indonesia's inflation rate rose to 4.42 percent (y/y) in February 2016, up from 4.14 percent (y/y) in the preceding month. In the first two months of 2016, Bank Indonesia cut its benchmark interest rate (BI rate) to 7.00 percent. Commonwealth Bank of Australia economist Andy Ji said the rupiah is appreciating as it is a high-yielding currency that benefits from the risk-on sentiment.

Meanwhile, Morgan Stanley Investment Management is becoming positive about the Indonesian rupiah (and Malaysian ringgit) as the country is less reliant on exports to China compared to other Asian economies. It is therefore no surprise to see the rupiah recovering from a 17-year low and now becoming the best performer among Asia's emerging currencies.

Data from Bloomberg shows that global investors have increased their holdings of Indonesian debt by USD $2.1 billion so far this year and have put USD $155 million into Indonesia's equities (after withdrawing USD $1.6 billion last year).

This week Asian currencies have been appreciating against the US dollar after China's central bank cut its reserve requirements for banks, hence boosting investor appetite for risk. Meanwhile, concern about currency wars in the Asian continent have eased after policymakers at the G-20 meeting agreed on the commitment not to devalue currencies in a way that could trigger a currency war.

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.40 percent to IDR 13,314 per US dollar on Wednesday (02/03).

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

Meanwhile, Indonesia's benchmark stock index (Jakarta Composite Index) rose 1.18 percent to 4,836.20 points on Wednesday.