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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.
The central bank of Indonesia (Bank Indonesia) left its benchmark interest rate (the BI 7-Day Reverse Repo Rate) unchanged at 5.75 percent at the October 2018 policy meeting (22-23 October). Meanwhile, the deposit facility and lending facility rates were kept at 5.00 percent and 6.50 percent, respectively.
On Monday (08/10) Indonesia Investments released the September 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 September 2018 and also touches upon key international developments that impacted on the Indonesian economy.
While most of the focus, rightfully, remains centered on the disaster in Central Sulawesi where presumably thousands of people have lost their lives due to a big earthquake and devastating tsunami, it is worth keeping an eye on the Indonesian rupiah exchange rate which is again facing heavy pressures and has now slipped beyond the psychological boundary of IDR 15,000 per US dollar.
The central bank of Indonesia (Bank Indonesia) raised its benchmark interest rate (the seven-day reverse repo rate) by 25 basis points (bps) to 5.75 percent at the two-day policy meeting that was concluded on Thursday (26-27 September 2018). Also the deposit facility and lending facility rates were raised by 25 bps to 5.00 percent and 6.50 percent, respectively.
In line with expectations, the US Federal Reserve decided to raise its benchmark interest rate by 25 basis points to the range of 2.00 - 2.25 percent at the September policy meeting that was concluded on Wednesday 26 September 2018. It is the Fed's eight rate hike since 2015 and the third one so far in 2018.
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Indonesian assets weakened on Friday (06/11) on expectation that US non-farm payrolls and US employment data would improve, suggesting that a Fed Fund Rate hike may occur in December 2015. Such expectations were correct. After Indonesian and other Asian markets had closed on Friday, the US Labor Department announced that October payrolls rose 271,000 (the largest increase this year), while the US unemployment rate touched a seven-year low at 5 percent. Furthermore, the average hourly earnings over the past 12 months climbed by the most since 2009.
As Indonesia's inflation rate has eased to 6.25 percent (y/y) in October 2015 from 6.83 percent (y/y) in the previous month, and given that Indonesian inflation will ease more markedly in the last two months of 2015 as the impact of the subsidized fuel price hike in November 2014 will vanish, the central bank of Indonesia (Bank Indonesia) seems to have more scope to cut its current relatively high benchmark interest rate, hence giving rise to accelerated economic activity.
Today (22/10), the World Bank released the October 2015 edition of its flagship Indonesia Economic Quarterly, titled "In Times of Global Volatility". In the report the World Bank states that despite current ongoing global uncertainties (caused by looming monetary tightening in the USA and China's economic slowdown), which make macroeconomic management difficult in the year ahead, pro-active government action could offset the negative impact and may help to boost growth.
American financial services company Standard & Poor's warns that defaults by Indonesian companies are a serious threat over the next 18 months given their eroded balance sheets amid the country's current economic slowdown. The warning came after Indonesian mobile phone retailer Trikomsel Oke announced plans to restructure about USD $155 million worth of debt as it may not be capable to meet obligations indefinitely.
Both Morgan Stanley and Moody's Investors Service have cast some negative perceptions on the condition of the Indonesian economy. First, American multinational financial services corporation Morgan Stanley released a report in which it stated that the recent rupiah rally will not last (Morgan Stanley maintains its year-end target of IDR 14,000 per US dollar). Then, global credit ratings agency Moody's criticized Indonesia's recently unveiled third policy package in which the government lowers energy prices for local manufacturers in a bid to support the industry.
The government of Indonesia unveiled the last installment of a series of three stimulus packages on Wednesday (07/10). The first two installments had been unveiled last month. In general, these stimulus packages aim to boost economic growth of Indonesia (which has slowed to a six-year low) and restore investors' confidence in the Indonesian rupiah and stocks. When markets believed that the Federal Reserve would soon raise its key interest rate, Indonesia was plagued by severe capital outflows pushing the rupiah to a 17-year low.
The government of Indonesia unveiled the second installment of its September economic policy package on Tuesday (29/09). The package is introduced in an attempt to boost economic growth in Southeast Asia’s largest economy and defend the ailing rupiah. Indonesia’s GDP growth slowed to a six-year low of 4.67 percent (y/y) in Q2-2015, while the rupiah has depreciated to a 17-year low against the US dollar. Capital outflows from Indonesia are the result of monetary tightening in the USA, low commodity prices and sluggish global economic growth (particularly China’s hard landing).
The central bank of Indonesia announced on Thursday (17/09) that it the country’s key interest rate (BI rate) at 7.50 percent, while maintaining the deposit facility rate at 5.50 percent and the lending facility rate at 8.00 percent. According to Bank Indonesia (BI) this decision is consistent with its efforts to push inflation towards the target corridor of 4±1 percent in both 2015 and 2016. In addition, the decision is also part of Bank Indonesia’s measures to anticipate possibilities of a Fed Fund Rate (FFR) hike.
After a real roller coaster ride, Indonesia’s benchmark stock index (Jakarta Composite Index) climbed 0.35 percent to 4,446.20 points at the end of the trading week. The majority of key stock indices across the globe tended to strengthen on Friday after a week characterized by severe volatility amid concern about the economic situation in China.
Although Indonesian stocks managed to rebound, the rupiah continued to depreciate against the US dollar today (25/08). However, rupiah weakening was limited as Bank Indonesia was closely monitoring and intervening in markets to support the rupiah. Based on the Bloomberg Dollar Index, the Indonesian rupiah depreciated 0.03 percent to IDR 14,054 per US dollar. As significant further rupiah weakening is assumed to seriously undermine confidence in the rupiah, the central bank’s intervention efforts are well received by investors.
