The Indonesian rupiah experienced a volatile day on Thursday (02/06), touching a four-month low in the morning after Indonesia failed to get investment grade status (yet) from global credit rating agency Standard & Poor's (S&P). However, at the end of the trading day the rupiah had appreciated 0.13 percent to IDR 13,643 per US dollar (Bloomberg Dollar Index). Most emerging Asian currencies appreciated against the US dollar today amid uncertainty about an imminent Fed Funds Rate hike.
After disappointment about the failure to obtain investment grade status from S&P waned, there was room for rupiah appreciation supported by strengthening emerging currencies across Asia as there emerged uncertainty whether the world will see another Fed Funds Rate hike in either June or July. Meanwhile, the Japanese yen appreciated markedly after Prime Minister Shinzo Abe put off a sales tax hike (which will be delayed by more than two years). This decision caused a flow of funds toward the yen (a safe haven) as investors are concerned about the effectiveness of Abe's reform policies, while expectation about more monetary stimulus from the Bank of Japan declined.
Perry Warjiyo, Deputy Governor at Bank Indonesia, said today he expects the average rupiah exchange rate in 2016 to range between IDR 13,500 - 13,800 per US dollar.
Indonesian Finance Minister Bambang Brodjonegoro told a parliamentary budget committee today that the government plans to propose a revision to the fiscal deficit that is set in the 2016 State Budget. The government wants to widen the budget deficit to 2.48 percent of the nation's gross domestic product (GDP), up from the 2.15 percent of GDP target that was set in the original 2016 State Budget. In order to finance part of the deficit the government plans to issue IDR 57.8 trillion (approx. USD $4.2 billion) worth of additional bonds this year.
On Wednesday (01/06) S&P said it kept Indonesia's sovereign rating at BB+ with a positive outlook (one notch below investment grade) due to Indonesia's fiscal performance (S&P is concerned about the government's rising budget deficits in the years ahead and the decline in Indonesia's corporate credit quality). Meanwhile, S&P is also concerned about Indonesia's slow per capita GDP growth (this is regarded an indication that the government's policies are yet to deliver prosperity).
Bank Indonesia's benchmark rupiah rate (the Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.18 percent to IDR 13,695 per US dollar on Thursday (02/06).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
Strange S&P has Philippines and Thailand on investment grade.... but not Indonesia. Indonesia's fiscal stability doesn't seem worse than that of Philippines & Thailand in my opinion. I just read Philippines is to widen its fiscal deficit to 3 percent of GDP...