After Islamic New Year celebrations, Indonesia’s financial markets reopened on Thursday (15/10). The sharp appreciation of the Indonesian rupiah on Thursday morning is remarkable. By 10:10 am local Jakarta time, the rupiah had appreciated 2.36 percent to IDR 13,295 per US dollar (Bloomberg Dollar Index) hence extending last week’s gains when Indonesia’s currency strengthened around 9 percent against the greenback. Emerging markets assets are still gaining on signs that the Federal Reserve will not raise US interest rates in the short-term.
Meanwhile, Indonesia’s benchmark Jakarta Composite Index was up by 0.96 percent to 4,526.20 points by 10:20 am local Jakarta time. On Thursday, emerging market assets are not influenced by yesterday’s declines on Wall Street where US stocks closed lower led by weakening retail stocks after Wal-Mart released a disappointing earnings forecast.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 1.98 percent to IDR 13,288 per US dollar on Thursday (15/10).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
Today, Indonesia’s central bank (Bank Indonesia) will hold its monthly policy meeting (Board of Governor’s Meeting). It is highly unlikely that Bank Indonesia will change its key interest rate (BI rate) from the current level of 7.50 percent as the country’s inflation rate - although improving - is still not within the central bank’s 2015 target (between 3-5 percent y/y).
However, due to the recent sharp strengthening of the rupiah and possible delay in higher US interest rates, several analysts believe that Bank Indonesia has room to cut its interest rate regime before the year-end. A BI rate cut would support economic growth in Southeast Asia’s largest economy. In the second quarter of 2015 Indonesia’s gross domestic product (GDP) growth slowed to the six-year low of 4.67 percent (y/y). On the other hand, the high degree of uncertainty that has been plaguing global financial markets over the past couple of months (monetary policy of the Federal Reserve and the impact of slowing economic growth of China) make chances of a BI rate cut small. As such, we expect Bank Indonesia to wait and see for a couple of months before deciding to change its monetary policy.
Meanwhile, Indonesia is still plagued by a current account deficit which makes the country vulnerable to capital outflows in times of global turmoil. Later today, Statistics Indonesia (BPS) will release the official September trade data. Earlier this week, the central bank said it expects to see a USD $1 billion trade surplus in September (primarily on improving manufacturing exports), which would be the country’s tenth straight monthly trade surplus. The weak rupiah has supported country’s current account balance as imports have become expensive, while exports have become more competitive on the global market. In 2014, Indonesia’s current account deficit stood at 2.9 percent of GDP, dangerously close to the 3.0 percent boundary that - by many - is regarded as the level that separates a sustainable from an unsustainable current account deficit. This year, the deficit may improve to 2.4 percent of GDP.
When will Indonesia's economic growth rebound?
Voting possible: -
- In 2017 (40.8%)
- In 2016 (40%)
- I don't know (13.8%)
- In the second half of 2015 (5.4%)
Total amount of votes: 130