Indonesian shares and the rupiah strengthened considerably on the last trading day of the week. On Friday (29/09) Indonesia's benchmark Jakarta Composite Index surged 1.02 percent to 5,900.85 points, outperforming all other national benchmark indices in the Asia-Pacific region. Meanwhile, the Indonesian rupiah appreciated 0.32 percent to IDR 13,472 per US dollar (Bloomberg Dollar Index).
With regard to equity markets, the performance of Indonesian stocks was remarkable. While indeed most benchmark indices in the Asian region were in the green zone - hence somewhat recovering from tough sessions in the preceding days when Asian stocks were under pressure due to rising expectations of a looming Federal Reserve interest rate hike in December as well as North Korea-United States turmoil - Indonesian stocks surged at a much higher pace, slightly over 1 percent, on Friday (29/09).
It is assumed internal factors are at play that caused the impressive rise of Indonesian stocks today, specifically assumptions about Indonesia's monetary policy.
On Friday, Indonesia's central bank (Bank Indonesia) indicated that it will most likely not pursue further monetary easing this year. Over the past two months, Bank Indonesia implemented two rather unexpected rate cuts, pushing the benchmark rate down by a total of 50 basis points (bps) to 4.25 percent in a bid to boost economic growth.
Bank Indonesia had room to lower the rate in August and September as inflation was in check, the current account deficit under control, while the rupiah exchange rate was stable against the US dollar. Therefore, there was actually speculation among investors that Bank Indonesia would be eager to cut the benchmark interest rate again before the end of 2017.
However, on Wednesday and Thursday the rupiah had been under severe pressure amid US dollar strength (triggered by looming US monetary tightening and the unveiling of US President Donald Trump's tax reform program), thus touching a ten-month low against the greenback.
On Friday, Bank Indonesia Governor Agus Martowardojo said the two rate cuts that had been conducted by Bank Indonesia over the past two months are "sufficient" and therefore it seems likely the central bank will not push for more monetary easing (especially considering the many global uncertainties). Martowardojo added that Indonesia's economic growth is expected to accelerate in the third quarter of 2017, with all components already showing "positive development".
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.21 percent to IDR 13,492 per US dollar on Friday (29/09).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia