The Eurozone’s finance ministers said that the reforms that were presented by the Greek government (in exchange for a four-month loan extension) form a valid starting point hence markets are optimistic that there will be no Greek default or exit from the euro.

Most emerging Asian currencies appreciated against the US dollar after Yellen said before the US Senate Banking Committee on Tuesday (24/02) that the US central bank will not rush to raise interest rates. As higher US interest rates are expected to result in capital outflows from emerging markets (including Indonesia), any indication of a delay in raising these rates causes investors’ appetite for higher-yielding (yet riskier) emerging market assets to grow. Indonesia is particularly vulnerable to capital outflows in times of economic shocks, not only because of the country’s wide current account deficit, but also because a significant portion of its assets are in the hands of foreign investors. The Indonesian Finance Ministry said that foreign ownership of rupiah-denominated bonds climbed to a record high in nominal terms this week.

Returning to the USA, new US homes sales were rather flat in January (falling 0.2 percent) hence fuelling expectation that recent job gains and relatively low mortgage rates are yet to spur the country’s real estate market. Later today, the US inflation figure for January will be released. Several analysts expect to see deflation, thus giving further signs that the American economy needs no further monetary tightening yet.

Besides the news from the USA, emerging market currencies were also supported by the release of China’s HSBC Markit Purchasing Managers' Index (PMI). This showed a four-month high for China at 50.1 in February, exceeding market expectations. A steady growing China is positive for Indonesia as the world’s second-largest economy is an important export destination for Indonesian products.

However, the appreciation of the rupiah was somewhat curbed by increasing US dollar demand from local companies to settle month-end payments. Moreover, market participants are now waiting for the release of several key Indonesian macroeconomic figures, most notably February inflation, next Monday (02/03) by Statistics Indonesia (BPS). Due to higher rice prices, Indonesian inflation may be a bit higher than initially forecast (previous forecasts in fact indicated that Indonesia would experience deflation in February). In January Indonesia posted deflation at 0.24 percent amid easing fuel prices.

Inflation in Indonesia:

Month  Monthly Growth
 Monthly Growth
 Monthly Growth
January          1.03%          1.07%         -0.24%
February          0.75%          0.26%
March          0.63%          0.08%
April         -0.10%         -0.02%
May         -0.03%          0.16%
June          1.03%          0.43%
July          3.29%          0.93%
August          1.12%          0.47%
September         -0.35%          0.27%
October          0.09%          0.47%
November          0.12%          1.50%
December          0.55%          2.46%
Total          8.38%          8.36%         -0.24%

Source: Statistics Indonesia (BPS)

Inflation of Indonesia 2008-2014:

     2008    2009    2010    2011    2012    2013    2014
(annual percent change)
    9.8     4.8     5.1     5.4     4.3     8.4     8.4

Sources: World Bank

Due to the market’s wait & see attitude on Thursday (26/02) - in combination with profit taking - Indonesia’s rupiah is slightly depreciating today. Based on the Bloomberg Dollar Index, the rupiah had depreciated 0.11 percent to IDR 12,870 per US dollar by 12:11 pm local Jakarta time. The benchmark stock index (Jakarta Composite Index) was down 0.23 percent to 5,432.67 by the same time.

Despite having cut its benchmark interest rate (BI rate) by 25 basis points to 7.50 percent in mid-February, Indonesia’s central bank (Bank Indonesia) is expected to maintain the current (still relatively tight) monetary stance.

Agus Martowardojo, Governor of Bank Indonesia, said that the central bank remains cautious amid a recovering US economy while the Eurozone and Japan are implementing looser monetary policies. Martowardojo said that these developments make US dollar assets far more attractive compared to the riskier assets in emerging economies.

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.19 percent to IDR 12,862 per US dollar on Thursday (26/02).

Indonesian Rupiah versus US Dollar:

| Source: Bank Indonesia