Just before the market closed on Tuesday (18/08) the Indonesian rupiah experienced a remarkable recovery, signalling that the country’s central bank (Bank Indonesia) intervened to support the ailing currency (after Malaysia’s ringgit, the rupiah is the second-worst performing emerging currency in Asia so far this year, weakening 11.2 percent against the US dollar). Today, based on the Bloomberg Dollar Index, the Indonesian rupiah was gradually falling toward IDR 13,860 per US dollar until it suddenly appreciated markedly.

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For the sixth straight month, the central bank of Indonesia (Bank Indonesia) left its interest rate regime unchanged at Tuesday’s Board of Governor’s meeting (18/08) as it aims to guard the rupiah against severe volatility (which occurred after China’s yuan was allowed to devalue, while markets are still preparing for monetary tightening in the USA) and tries to combat inflation.

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Although influence of the devaluation of China’s yuan has eased, the Indonesian rupiah remains under pressure as investors are waiting for results of Bank Indonesia’s Board of Governor’s meeting (to be held later today), low oil (and other commodity) prices, while the US dollar appreciates against most other currencies amid mixed US macroeconomic data. Based on the Bloomberg Dollar Index, the rupiah had depreciated 0.12 percent to IDR 13,838 per US dollar by 10:30 am local Jakarta time on Tuesday (18/08).

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On 16 August 2015, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve economic and political subjects such as the cabinet reshuffle, the 2016 State Budget draft, the current account balance, an analysis of the recent performance of the rupiah and Indonesian stocks, the coal industry, and more.

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The central bank of Indonesia (Bank Indonesia) announced on Friday (14/08) that the country’s current account deficit narrowed to USD $4.48 billion, or 2.1 percent of gross domestic product (GDP), in the second quarter of 2015. In the same quarter last year the deficit stood at USD $9.59 billion). As such, the current account deficit (CAD) has become more sustainable and this may provide some support for the rupiah which is currently facing tough times (ahead of a looming US interest rate and China’s yuan devaluation).

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Today (14/08) the central bank of China let the yuan appreciate 0.05 percent against the US dollar, effectively ending three consecutive days of devaluation. The People's Bank of China (PBoC) also pledged to safeguard a stable yuan after the sharp devaluation had triggered significant volatility on international financial markets. For example, Indonesian assets (stocks and the rupiah) tumbled severely on Tuesday and Wednesday amid yuan devaluation (and looming higher interest rates in the USA).

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For the third straight day China allowed its currency to weaken against the US dollar. On Thursday (13/08) the yuan depreciated 0.7 percent against the greenback, signalling that China’s central bank may let the yuan weaken further in a controlled manner. Yesterday, just before trading closed, it actually intervened to support the currency as the yuan depreciated nearly two percent (the daily limit). The move of China to devalue the yuan is a step toward liberalization and also boosts the country’s sluggish export performance.

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The fall of Indonesian stocks and the rupiah on Wednesday (12/08) is much more severe than had previously been expected. By 11:14 am local Jakarta time, the benchmark Jakarta Composite Index had fallen 3.12 percent to 4,478.56 points, while the rupiah had depreciated 1.75 percent to IDR 13,845 per US dollar according to the Bloomberg Dollar Index. Across Asia, emerging markets are badly affected (for a second straight day) by China’s decision to devalue its yuan. The yuan is now at its weakest level since October 2012.

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Indonesian stocks are experiencing a remarkable fall on Tuesday (11/08). In the first trading session, the benchmark stock index (Jakarta Composite Index) plunged 2.15 percent to 4,646.95, its lowest level since early March 2014 and leading declines among Southeast Asian stock indices. Stocks in Asia have been hit by China’s decision to allow its currency to weaken against the US dollar (the yuan fell 1.6 percent against the US dollar after the move dragging down other Asian currencies including the Indonesian rupiah).

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The Indonesian rupiah continues to depreciate on Tuesday (11/08). By 11:16 am local Jakarta time, the rupiah had depreciated 0.14 percent to IDR 13,570 per US dollar according to the Bloomberg Dollar Index. Indonesia’s currency has been touching 17-year lows due to bullish US dollar momentum ahead of looming higher US interest rates. Today, the US dollar received additional strength as China allowed its currency to weaken to a three-year low, dragging down other currencies in the Asian region.

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The continued presence of negative market sentiments made it impossible for Indonesia's Jakarta Composite Index (IHSG) to rebound. The looming end of the FED's quantitative easing program - which may be wound down sooner than expected - is a big cause for concern. The depreciating Indonesia rupiah exchange rate intensifies these concerns, particularly regarding companies that have exposure to volatile US dollar movements. Furthermore, investors are waiting for further US economic data as well as for Bank Indonesia's next meeting.

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Apparently positive market sentiments brought on by the macroeconomic data released on Monday (02/12) did not last long. Yesterday, Indonesia's benchmark stock index (IHSG) was lifted by the October 2013 trade surplus and limited November inflation. However, investors are now back to reality and prefer to wait for results of Bank Indonesia's Board of Governor's meeting (12/12) and the Federal Reserve's FOMC meeting (17-18/12). The former will inform about Indonesia's interest rate, the latter about the future of quantitative easing.

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The inflation rate of Indonesia rose slightly in November 2013 (month-to-month) and confirms estimations that inflation in Southeast Asia's largest economy is under control after having accelerated sharply due to the introduction of higher subsidized fuel prices June 2013. In recent months, inflation moved sideways and is expected to ease considerably in the first quarter of 2014. Indonesia's consumer price index rose 0.12 percent in November due to rising electricity, processed foods and health care costs.

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Although widespread concerns about Indonesia's prolonged trade deficit (and current account deficit) are far from unfounded, the country's October 2013 trade data show a positive result. On Monday (02/12), Statistics Indonesia announced that Southeast Asia's largest economy posted a small trade surplus of USD $42.4 million in October after having recorded a trade deficit of USD $810 million in the previous month. This calender year (January to October 2013), the trade deficit has accumulated to USD $6.36 billion.

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The benchmark stock index of Indonesia (known as the Jakarta Composite index or IHSG) was able to continue its rise on Monday (02/12), supported by economic data released by Statistics Indonesia. Although Indonesia's November inflation rate (0.12 percent) was slightly higher than previously expected, investors were content with the result. Moreover, Indonesia's October trade balance showed a (limited) surplus of USD $42.2 million, constituting a sharp improvement from the large deficit in the previous month.

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After five consecutive days of depreciation, the Indonesian rupiah exchange rate finally managed to strengthen against the US dollar. Bank Indonesia's Jakarta Interbank Spot Dollar Rate rose 0.26 percent to IDR 11,946 per US dollar on Monday (02/12). According to Bloomberg data, the rupiah rose 1.85 percent to IDR 11,744 as of 02:25:50 ET as market participants have reacted positively to Indonesian trade and inflation data that were released today: October showed a trade surplus, while in November inflation was kept at 0.12 percent.

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The Jakarta Composite Index (Indonesia's benchmark stock index which is also known as the IHSG) gained 0.53 percent on Friday (29/11) and ended on 4,256.43 points. Today's trading day was relatively quiet with a transaction value of only IDR 3.30 trillion (USD $276.50 million). Foreign net buying of Indonesian shares supported the IHSG index to end this month's last trading day on a positive note. Sectors that performed well were agriculture (+2.18 percent), construction (+1.27 percent), and mining (+0.99 percent).

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On Friday (29/11), the last trading day of November 2013, the Indonesian rupiah exchange rate continued its downward spiral. The Jakarta Interbank Spot Dollar Rate¹ fell 0.39 percent to IDR 11,970 per US dollar amid concern about the winding down of the quantitative easing program, Indonesia's wide current account deficit, a disappointing US dollar-denominated bond auction and surging US dollar demand for earnings repatriation as well as foreign debt payment. Considering the full month of November, the rupiah depreciated 6.61 percent.

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Currently, one of Indonesia's main financial issues (and one which puts serious pressures on the Indonesian rupiah exchange rate) is the country's wide current account deficit. According to data from Statistics Indonesia, Indonesia's current account deficit totaled USD $8.4 billion in the third quarter of 2013. This figure is equivalent to a whopping 3.8 percent of Indonesia's gross domestic product (GDP). Generally, a current account deficit that exceeds 2.5 percent of GDP is considered unsustainable.

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Various factors contributed to the 2.30 percent decline of the Jakarta Composite Index (IHSG) on Tuesday (26/11). The index in fact fell below its support level. What were the main reasons for this weak performance? Firstly, the Indonesian rupiah exchange rate has been depreciating severely and causes concerns among market players. Secondly, most Asian stock indices fell as valuations climbed high and the Japanese Yen strengthened. Thirdly, European stock openings on Tuesday were weak. All these reasons together led to foreign net selling.

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