Indonesia experienced deflation, with consumer prices falling by 0.05 percent (month-on-month), in September 2015 on the back of lower food and transportation prices. Examples of lower food prices include chicken meat, eggs, chili peppers, onions and cooking oil. Regarding lower transportation costs it was particularly lower air transport tariffs that contributed to deflation. On an annual basis, Indonesian inflation eased to 6.83 percent in September, down from 7.18 (y/y) in the preceding month, and below analysts' estimates at 7.0 (y/y).

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After the government of Indonesia unveiled the second installment of its economic policy package on Tuesday (29/09), the central bank (Bank Indonesia) followed suit by releasing a rupiah exchange rate stabilization package on Wednesday (30/09). Bank Indonesia’s package has three main pillars: (1) safeguarding rupiah rate stability, (2) strengthening rupiah liquidity management, and (3) strengthening foreign exchange supply and demand management.

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Most Asian stock markets were stronger on Wednesday, led by Japan's Nikkei 225 Index which rose 2.70 percent on expectation of further government stimulus measures. Meanwhile, Indonesia's benchmark Jakarta Composite Index rose 1.09 percent to 4,223.91 points supported by the region's rising stock indices as well as on the back of the second installment of Indonesia's economic policy package. Meanwhile, the rupiah appreciated 0.26 percent to IDR 14,653 per US dollar (Bloomberg Dollar Index).

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Indonesian stocks experienced a remarkable roller coaster ride on Tuesday (29/09). After opening the benchmark Jakarta Composite Index fell more than two percent to a near three-year low. However, the index managed to finish the trading day at 4,178.41 points, a 1.41 percent rise. Meanwhile, Indonesia's rupiah managed to curb losses. Based on the Bloomberg Dollar Index, the rupiah passed beyond the IDR 14,800 per US dollar level several times but at the end of the day it had only weakened 0.11 percent to IDR 14,691 per US dollar.

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In an effort to support the ailing Indonesian rupiah, state-owned energy company Pertamina will cut its foreign exchange purchases on the spot market by around 50 percent. Pertamina together with state utility firm Perusahaan Listrik Negara (PLN) account for about half of Indonesia's daily foreign exchange (forex) transactions as these companies require US dollars for fuel purchases and overseas debt settlements.

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Indonesia's benchmark stock index (Jakarta Composite Index) was down over 2 percent, touching a three-year low, while the rupiah weakened beyond the IDR 14,800 per US dollar level (Bloomberg Dollar Index) around 09:00 am local Jakarta time on Tuesday (29/09) as the global selloff persists. Investors are concerned about the economic conditions of China and the world, low commodity prices, while anticipating a Fed Fund Rate hike.

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Stock indices in Asia were mixed on the first trading day of the week. Indonesia’s benchmark Jakarta Composite Index plunged 2.11 percent to 4,120.50 points (a two-year low), while the rupiah (remarkably) appreciated 0.13 percent to IDR 14,674 per US dollar according to the Bloomberg Dollar Index. Meanwhile, European markets were down after opening on Monday (28/09). What influenced these markets today?

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Indonesia plans to cut taxes for local exporters in a bid to boost the country’s foreign exchange reserves, while supporting the rupiah, as part of its second policy package. Indonesia’s rupiah has depreciated 18.1 percent since the start of 2015 due to looming higher US interest rates, low commodity prices, and China’s yuan devaluation. The government now plans to cut income tax on interest that exporters earn when depositing their export proceeds in local banks. Currently, income tax on bank interest (from deposit accounts) stands at 20 percent.

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After opening on Monday (28/09) Indonesian stocks rapidly fell amid mixed Asian markets. The main factor that causes several Asian markets to fall is declining Chinese industrial profits (triggering concern about a deepening slowdown of the world’s second-largest economy). China’s industrial profits fell 8.8 percent in August, down from July’s 2.9 percent drop. By 09:50 am local Jakarta time, the benchmark Jakarta Composite Index was down 1.41 percent to 4,150.27 points.

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The central bank of Indonesia (Bank Indonesia) is set to announce the second installment of a policy package that aims at raising onshore US dollar supplies (and liquidity). As the rupiah has been the second worst-performing Asian emerging market currency (after Malaysia’s ringgit), having depreciated 18.1 percent against the US dollar so far in 2015, Indonesian policymakers are anxious to prop up the ailing currency in order to safeguard the country’s financial stability. Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) stood at IDR 14,690 per US dollar on Friday (25/09), a 17-year low.

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Both the Jakarta Composite Index (Indonesia's benchmark stock index) and the Indonesia rupiah exchange rate are under pressure this morning as market participants are waiting for results of the central bank's Board of Governor's meeting that is held today (12/12) in Jakarta. Speculation has emerged that Indonesia's central bank (Bank Indonesia) will raise its benchmark interest rate (BI rate) one more time in 2013 in order to combat the country's current account deficit as well as mitigate the impact of a possible winding down of QE3.

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Although Indonesia's benchmark interest rate (BI rate) was kept at the level of 7.5 percent (in line with market expectation) today (12/12), it was not able to support the country's stock index. Indonesia's IHSG index fell 1.39 percent to 4,212.22 points. The index was negatively impacted by Asian stock indices that were down due to concerns about the looming end of the Federal Reserve's quantitative easing program. This made investors' positive reaction to the BI rate of temporary nature. Weak openings in Europe increased downward pressure.

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One of the main problems of Indonesia's benchmark stock index (IHSG) is the profit taking that immediately happens after a day of strong growth. On Wednesday (11/12), the IHSG index was plagued by profit taking since the start of the first trading session. Moreover, the index was impacted by mostly falling Asian stock indices as well as the Indonesia rupiah exchange rate which went above the IDR 12,000 per US dollar level again. The only support the IHSG received was just before its closing when European indices opened up.

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Throughout the morning, the Indonesia rupiah exchange rate showed volatile movement on Tuesday (10/12). In the Bloomberg Dollar Index, the currency was up 0.45 percent to IDR 11,920 per US dollar at 16:20:51 local Jakarta time. The rupiah's performance is volatile because negative sentiments are brought on by improving economic data from the USA, causing a strengthening US dollar, while positive market sentiments are brought on by the new fiscal policies that were announced by the Indonesian government.

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Indonesia's benchmark stock index (the Jakarta Composite Index or IHSG) continued yesterday's rise on today's trading day (10/12), supported by indices on Wall Street that climbed due to the lower VIX index (Chicago Board Options Exchange Market Volatility Index) although Asia's stock indices were mixed, while the Indonesia rupiah exchange rate continued its decline. Indonesia's manufacturing stocks were up along with consumer, automotive and processed foods stocks.

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After appreciating on Monday morning (09/12), the Indonesia rupiah exchange rate started to weaken against the US dollar in the afternoon. At 15:10:29 local Jakarta time, the rupiah stood at IDR 11,970 per US dollar in the Bloomberg Dollar Index, a 0.05 percent depreciation from the start of the day. The rupiah exchange rate is fluctuating due to positive sentiments caused by Indonesia's October trade surplus as well as China's low inflation and negative sentiments brought on by the looming end of the Federal Reserve's quantitative easing program.

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ICRA Indonesia, an independent credit rating agency and subsidiary of ICRA Ltd. (associate of Moody's Investors Service), publishes a monthly newsletter which provides an update on the financial and economic developments in Indonesia of the last month. In the November 2013 edition, a number of important issues that are monitored include Indonesia's inflation rate, the trade balance, the current account deficit, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:

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Indonesia's Finance Minister Chatib Basri stated that the government of Indonesia is busy preparing three new policies that aim to restore financial stability as well as attract foreign direct investments. These three new policies involve the higher sales tax on imported luxury cars, a revision of Indonesia's negative investment list, and the higher income tax on imported consumption goods. These three new policies are in addition to the policy package that was introduced by the Indonesian government in August 2013.

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Falling stock indices on Wall Street on Wednesday (04/12) impacted on Asia the following day resulting in the majority of Asian indices being down on Thursday's trading day (05/12), including the benchmark stock index of Indonesia (IHSG). Besides the impact of Wall Street, Asian stock markets are also vulnerable to ongoing concern about the future of the Federal Reserve's quantitative easing program. In the case of Indonesia, negative market sentiments are intensified by the continued depreciation of the rupiah exchange rate.

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In the morning of Thursday (05/12), Indonesia's rupiah exchange rate depreciated beyond the psychological level of IDR 12,000 per US dollar. In the Bloomberg Dollar Index, the rupiah fell 0.2 percent to IDR 12,011 as of 09:19:49. The main factor behind this decline is market participants' concerns about the end of the Federal Reserve's monthly USD $85 billion bond buying program. It is increasingly speculated that the winding down of this program will start sooner than expected.

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