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The Indonesian rupiah rate, which had been under extreme pressure amid the start of the novel coronavirus (COVID-19) crisis in March 2020, rebounded in April 2020 and continued this rebound throughout May 2020 (albeit at a less impressive pace).
While nearly all stock markets in Asia are in positive territory, Indonesia's benchmark Jakarta Composite Index has remained in deep red territory on Friday (20.03.2020). And while the US dollar halted its eight-day rally, the Indonesian rupiah exchange rate continued to weaken beyond the (psychologically sensitive) IDR 16,000 per US dollar threshold (after Bank Indonesia cut its benchmark interest rate by 25 basis points to 4.50 percent one day earlier). Market participants seemingly show an alarming loss of confidence in Indonesian assets.
While the Indonesian rupiah rate had retreated against the US dollar in November 2019 amid an increase in uncertainty in international markets, the Indonesian currency managed to end the year 2019 on a positive note.
The Indonesian rupiah rate appreciated modestly in September 2019. The currency started the month at the level of IDR 14,237 per US dollar and ended the month at IDR 14,174 per US dollar (data taken from Bank Indonesia’s benchmark Jisdor rate). In other words, the rupiah strengthened 0.44 percent against greenback in the month of September 2019.
Emerging market assets in Asia remained under pressure on Thursday (16.05.2019), with risk appetite being particularly undermined by rising concerns over USA-China trade tensions.
The Indonesian rupiah made a stable performance against the US dollar in February 2019. The benchmark JISDOR rate of Bank Indonesia ended the second month of the year at the position of IDR 14,062 per US dollar, appreciating modestly from the level of IDR 14,072 per US dollar at the last trading day of January 2019.
In the month of December 2018 the Indonesian rupiah weakened 0.99 percent from IDR 14,339 per US dollar on the last trading day of November 2018 to IDR 14,481 per US dollar on the last trading day of December 2018 (based on Bank Indonesia’s benchmark JISDOR rate).
On Monday (07/01) Indonesia Investments released the December 2018 edition of its monthly research report. The report aims to inform the reader of the key political, economic and social developments that occurred in Indonesia in the month of December 2018 and also touches upon key international developments that impacted on the Indonesian economy.
Although we predicted in our latest research report that Indonesia's central bank (Bank Indonesia) would raise its benchmark interest rate at the two-day monetary policy meeting on 14-15 November 2018, we were still taken by surprise after the decision was announced. After all, the rupiah had appreciated significantly in the days after the launch of our October research report.
Indonesia’s current account deficit is expected to widen to the range of 3.30 – 3.40 percent of the country’s gross domestic product (GDP) in the third quarter of 2018, above the 3.0 percent of GDP threshold that is usually considered to separate a sustainable from an unsustainable deficit.
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Indonesian retail businesses are optimistic that their performance will improve in 2016 on the back of rising purchasing power amid the government's decision to cut energy tariffs (fuel and electricity) and its plan to raise non-taxable income by 50 percent. These moves mean that Indonesian consumers (particularly in the lower middle class segment) should have more money to spend. Tutum Rahanta, Deputy Chairman of the Indonesian Retailers Association (Aprindo), says retail business can grow by 12 - 15 percent (y/y) in 2016, considerably higher than the 7 - 8 percent (y/y) growth pace realized last year.
In 2015 Unilever Indonesia's net profit declined 1.2 percent (y/y) to IDR 5.85 trillion (approx. USD $443 million) due to weakened purchasing power of Indonesian consumers amid the economic slowdown. Last year Indonesia's GDP growth touched the six-year low of 4.79 percent (y/y). This year, however, economic growth is estimated to accelerate beyond the 5.0 percent (y/y) mark. Unilever Indonesia is a leading consumer goods producer in Indonesia that is mainly focused on home & personal care products as well as foods & refreshment products. How about its performance in 2016?
To assess Indonesia's purchasing power and consumer confidence it is always useful to take a look at car and motorcycle sales because when people are confident about their financial situation and have enough money to spend then they tend to buy cars and motorcycles (motorcycles are particularly popular among Indonesia's huge middle to lower-middle class segment). Meanwhile, cement sales inform about property and infrastructure development. Property development is also closely related to purchasing power and consumer confidence because property development grows when people's demand for property rises.
Some concern has been raised about the inflow of foreign 'hot money' into Indonesia amid accomodative monetary policies conducted by central banks of the Eurozone and Japan (the latter implemented negative interest rates in late-January). The world's carry traders are now seeking cheap funds in advanced economies and invest these funds in assets that have attractive returns such as Indonesian bonds and stocks. Indonesia's benchmark interest rate (BI rate) is still relatively high at 7.0 percent after a 25 basis points cut at Bank Indonesia's February 2016 policy meeting.
Tomorrow (05/02), Statistics Indonesia is scheduled to release Indonesia's official full-year 2015 economic growth figure. Nearly all analysts expect to see a figure that reflects the continuation of slowing economic growth. Southeast Asia's largest economy expanded 5.0 percent in 2014 and this is expected to have eased further to 4.7 percent or 4.8 percent in 2015 on the back of (interrelated) sluggish global growth, low commodity prices, and weak export performance. Domestically, Indonesia has or had to cope with high interest rates and inflation (hence curtailing people's purchasing power and consumption as well as business expansion).
Whereas the Indonesian Automotive Industry Association (Gaikindo), expects Indonesia's car sales to rise five percent (y/y) in 2016 on the back of improving economic conditions, US-based consulting firm Frost & Sullivan expects to see a 4.3 percent decline in the country's car sales this year as continued rupiah depreciation and persistently low commodity prices undermine Indonesians' purchasing power.
Broad market trends in the Indonesian rupiah have held relatively consistent over the last year, with a modest devaluation seen against the US dollar. We did see fluctuations in these trends during the summer months but many of these moves came as a result of external influences. One of the best examples here is the media turmoil that posted during this period with respect to a slowdown in the Chinese economy, and this has left many investors wondering whether the rupiah will be able to stand on its own merits and reverse some of its earlier weakness.
New York-based financial services firm Standard & Poor's stated that Indonesia's banking industry will feel the negative impact of Indonesia's sluggish economic growth in combination with persistently low commodity prices next year. This combination may weaken profitability of the nation's banking industry. S&P puts Indonesia's economic growth in 2016 at 5 percent (y/y), below the International Monetary Fund's and World Bank's forecast as well as the central government's target, all at 5.3 percent (y/y).
The financial markets have had an interesting year in 2015, with several significant surprises seen in the major asset classes. On the whole, 2015 could probably be best described as a year of stabilizing with stocks and commodities holding mostly steady throughout the period. This has been largely true in the currency markets, as well. But there are some factors that are likely to influence trends for world currencies in new ways in 2016. Central banks in some regions will likely have significant influence in others, and investors will need to remain aware of the possibilities early in order to position for potential trend chances in critical areas.
Ace Hardware Indonesia, one of Indonesia's leading retail companies that is engaged in the markets of home improvement and lifestyle products, is expected to show modest (single-digit) growth in 2016. Same store sales growth is estimated to grow in the range of 8-10 percent year-on-year (y/y). This modest performance is caused by weak purchasing power in Indonesia amid sluggish economic growth and due to the fragile rupiah (against the US dollar).
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