For sure Indonesia's financial system will be affected by the Federal Reserve's decision to implement another interest rate hike, and especially emerging market currencies - including the rupiah - are vulnerable to further monetary tightening in the world's top economy. Most analysts now believe a Fed Funds Rate (FFR) hike could occur in July 2016. In previous rounds of US monetary tightening (QE tapering and the December 2015 FFR hike) we witnessed large capital outflows from Indonesia. What will be the impact of another US interest rate hike on Indonesia?

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The Indonesian rupiah was under pressure on Tuesday (24/05). Based on the Bloomberg Dollar Index, the rupiah depreciated 0.47 percent to IDR 13,638 per US dollar, the weakest level since early February 2016. However, the Indonesian rupiah is not the only emerging market currency in Asia that was under pressure today. Meanwhile, Asia's emerging market stocks also declined. Negative market sentiments are caused by growing speculation about a sooner-than-expected interest rate hike in the USA as well as sliding oil prices.

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Over the past couple of trading days Indonesian stocks and the rupiah have been under pressure due to increasing speculation about a sooner-than-expected Fed Funds Rate hike in the USA. These pressures have caused some volatile behavior in the performance of emerging market stocks and currencies. Today, however, most Asian stocks moved higher with the notable exception of Japanese shares that were plagued by the release of weak April trade data. Meanwhile, the G-7 meeting last weekend failed to result in an agreement on a plan to revive global growth.

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Both the Indonesian rupiah and Jakarta Composite Index (IHSG) are under pressure on Thursday (19/05) as renewed speculation about a sooner-than-expected interest rate hike in the USA puts severe pressure on emerging market assets, while the US dollar is appreciating sharply. Based on the minutes of the 26-27 April Federal Reserve meeting, more and more analysts believe that another Fed Fund Rate hike could come as early as June 2016.

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Turnover in Indonesia's food and beverage sector reached IDR 400 trillion (approx. USD $30.3 billion) in the first quarter of 2016, up 7.55 percent from the same period one year earlier. Adhi Lukman, Chairman of the Indonesian Food and Beverage Association (GAPMMI), is content to see the growth pace, particularly because it is supported by rising sales volumes. In Q1-2015 the growth pace in Indonesia's food and beverage industry was higher (at +8.16 percent y/y) but this growth was more supported by higher prices rather than rising sales volumes.

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Most Asian stocks are in the red zone on Monday (09/05) and Indonesia's benchmark Jakarta Composite Index is leading declines. At the end of the first trading session Indonesian shares were down 1.15 percent at 4,767.32 points. Important issues that influence the performance of Asian stock markets are China's April trade data and US April jobs data. Meanwhile, crude oil prices continued to rally and the yen finally weakened against the US dollar (hence supporting Japanese stocks).

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Indonesian cosmetic companies listed on the Indonesia Stock Exchange have not yet seen earnings gain momentum in the first quarter of 2016. Martina Berto is the only listed cosmetic producer that managed to post rising net sales and net profit in Q1-2016. Meanwhile, the two other cosmetic firms - Mustika Ratu and Mandom Indonesia - saw their net sales decline in the same period due to weak purchasing power and household consumption in Southeast Asia's largest economy. Moreover, cosmetic firms have been offering discounts in order to raise sales volumes.

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Ahead of central bank meetings in the USA and Japan, and amid a volatile performance of crude oil prices the benchmark stock index of Indonesia (Jakarta Composite Index) fell 1.33 percent to 4,814.09 points on Tuesday (26/04), leading losses among Asian indices. The Federal Reserve's two-day FOMC meeting, scheduled to start today, is making investors cautious as this meeting may give some clues about the possibility of a June Fed Fund Rate hike. Overall, the performance of Asian stock markets was rather mixed on Tuesday. This performance was also attributed to weak cues from Wall Street and Europe overnight.

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Asian stocks did not have a good start of the week. Most Asian stocks fell on Monday (25/04) in line with retreating oil prices, concerns that the US Federal Reserve may be hinting at further monetary tightening in its upcoming policy meeting, as well as concerns about China's debt and commodities markets. It all resulted in curbed demand for higher-yielding yet riskier Asian assets. Indonesia's benchmark Jakarta Composite Index fell 0.73 percent to 4,878.86 points, while the Indonesian rupiah depreciated 0.04 percent to IDR 13,199 per US dollar (Bloomberg Dollar Index).

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The central bank of Indonesia (Bank Indonesia) kept its key interest rate (BI rate) at 6.75 percent at the April policy meeting. This decision was in line with expectations. During the three policy meetings conducted in the January-March 2016 period Bank Indonesia had already cut its BI rate by a combined 75 basis points as inflation and the current account deficit are under control, while the Indonesian rupiah has been strengthening against the US dollar since the start of 2016. Last week, Bank Indonesia announced it will adopt the seven-day reverse repurchase rate (reverse repo) to replace the existing BI rate as the bank's key monetary tool.

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Car sales in Indonesia are expected to exceed the target set by the Indonesian Automotive Industry Association (Gaikindo) in 2013. The institution originally set a target of 1.1 million sold car vehicles in 2013, which is similar to the sales result in 2012. However, in September 2013 car sales recorded a new monthly record (115,921 sold units) after consumers sped up car sales as prices will increase in October. Up to the third quarter of 2013, total car sales have increased 11.2 percent compared to the same period last year.

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According to Ferry Salanto, Associate Research Director at Colliers International Indonesia, the weakening rupiah exchange rate against the US dollar in recent months has resulted in an increase of property sales in Indonesia, particularly apartments. Salanto says it is not just an investment for the buyer but also a matter of security. Property is currently a better and safer alternative to the holding of rupiahs. In the third quarter of 2013, property sales increased despite the higher benchmark interest rate and the tightening property credit environment.

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The Jakarta Composite Index (IHSG) rebounded on Thursday's trading day (17/10), supported by good news from the United States where finally an agreement was reached regarding the US debt ceiling. This agreement brought positive market sentiments on Asian stock markets, including the IHSG which rose 0.59% to 4,518.93 points. Moreover, Indonesia's minister of Economy Hatta Rajasa stated that Indonesia had not been significantly impacted by the US shutdown issue and this statement also managed to ease investors' concerns.

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The benchmark stock index of Indonesia (IHSG) was down 0.61 percent to 4,492.26 on its first trading day after the Idul Adha celebrations (when Muslims remember that Abraham was willing to sacrifice his son to God). The main reason why the IHSG was down on Wednesday (16/10) was due to continued uncertainty about the US debt ceiling issue, while the deadline (17/10) is closing in. Fitch Ratings put US Treasury bonds on Rating Watch Negative, which might be a first step before a downgrade.

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On 12 October 2013 Finance Minister and Central Bank Governors from Korea and Indonesia agreed to establish a bilateral KRW/IDR swap arrangement in the near future. The size of the swap arrangement is up to KRW 10.7 trillion/IDR 115 trillion (equivalent to USD $10 billion). The effective period of the facility will be three years, and could be extended by agreement by both sides. This Bilateral Currency Swap Arrangement (BCSA) aims to promote bilateral trade and further strengthen financial cooperation, an objective of mutual interest to both countries.

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Bank Indonesia’s Board of Governors decided to hold the BI Rate at a level of 7.25 percent, with rates on the Lending Facility and Deposit Facility held respectively at 7.25 percent and 5.50 percent. Bank Indonesia will continue to monitor global and domestic developments and further synergise the monetary and macroprudential policy mix in order to ensure that inflationary pressures remain under control, that rupiah exchange rate stability is maintained according to its fundamentals and the current account deficit is reduced to a sustainable level.

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Although part of the market players on Indonesia's Stock Exchange (IDX) engaged in profit taking after Indonesia's benchmark index (IHSG) climbed for two consecutive days, the index still posted growth of 0.71 percent to 4,418.64 points on Thursday (03/10). Factors that contributed to today's gain were the depreciating US dollar as no solution has been found yet concerning the shutdown, generally rising Asian stock indices and the positive message that is conveyed in the APEC meeting in Bali.

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Despite some appetite for profit taking, the key stock index of Indonesia (IHSG) was able to rise 0.96 percent to 4,387.60 points on Wednesday (02/10). The index was supported by the appreciating rupiah, a few rising Asian stock indices and foreign net stock purchases. The Indonesian rupiah rose against the US dollar as the latter was impacted upon by the debt ceiling and shutdown issue in the USA. Asian stock indices were mixed. Concerns about the shutdown were offset by rising Asian currencies against the US dollar.

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On this week's second day of trading (01/10), the benchmark stock index of Indonesia (IHSG) was able to post a 0.69 percent rise to 4,345.90 points despite ongoing concerns about the economic shutdown in the United States as discussions have not led to agreement about the country's debt ceiling. However, various data from Asia made a good impact. Indonesia's trade surplus in August and deflation in September contributed to positive market sentiments and provided a boost for the rupiah.

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Concerns about the US debt ceiling issue have a negative impact on stock indices around the world, including Indonesia's benchmark stock index (IHSG). Market players fear a possible deadlock during the state budget discussions, which - if not resolved - will have a serious negative impact on the economy. Factors that contributed to negative market sentiments were the continued depreciating value of rupiah and weak openings of European stock indices. The IHSG fell 2.43 percent to 4,316.18 on Monday (30/09).

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