Indonesia's plan to  raise people's (annual) non-taxable income by 50 percent to IDR 54 million (approx. USD $4,090) is estimated to add 0.3 percentage point to consumption growth in Indonesia according to Indonesia's Finance Minister Bambang Brodjonegoro. Last week, Brodjonegoro announced this tax incentive with the aim to strengthen Indonesians' purchasing power and encourage household consumption. Household consumption, which accounts for about 56 percent of Indonesia's overall economic growth, has been curtailed in recent years amid slowing economic growth, high inflation and the weak rupiah rate (against the US dollar).

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Due to weaker-than-expected revenue in 2016, the government of Indonesia has to cut government spending by IDR 50.6 trillion (approx. USD $3.8 billion) this year. Indonesian Finance Minister Bambang Brodjonegoro informed that the government is currently in the middle of discussing revisions of the 2016 State Budget (APBN 2016). Weaker-than-expected government revenue is primarily the cause of weaker-than-targeted tax revenue. The government will also revise its inflation, average rupiah rate, and average oil price targets. Despite the expected cut

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The central bank of Indonesia (Bank Indonesia) announced that the nation's foreign exchange reserves rose to a total of USD $107.5 billion at the end of March 2016, up USD $3 billion from Indonesia's forex assets one month earlier. Growing reserves came on the back of foreign exchange receipts, primarily through the the issuance of government global sukuk (Islamic bonds) and Bank Indonesia's US dollar-denominated bills. These forex receipts outweighed the government's foreign debt obligations.

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Most emerging market stocks and currencies strengthened today as markets responded positively to Federal Reserve Chairwoman Janet Yellen's dovish statements overnight. Based on her words, the Federal Reserve is not expected to undertake another US interest rate hike soon as the US economy remains fragile amid sluggish global economic growth. As a result Indonesia's benchmark Jakarta Composite Index climbed 0.74 percent, while the Indonesian rupiah appreciated 1.04 percent to IDR 13,256 per US dollar (Bloomberg Dollar Index).

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In line with the performance of most emerging stock markets and currencies, Indonesian stocks and the rupiah were under pressure on Monday (28/03). The Jakarta Composite Index fell 1.11 percent, while the Indonesian rupiah depreciated 0.73 percent to IDR 13,343 per US dollar (Bloomberg Dollar Index). This performance is caused by rising speculation that the US Federal Reserve could hike its key Fed Fund Rate as early as April. Several Fed officials have made hawkish comments, while the upward revised 1.4 percent GDP growth of the US economy in Q4-2015 may show that the US is strong enough to cope with another rate hike.

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Asian stocks were mixed after opening on the first trading day of the new week. Energy stocks are mostly down due to another retreat in global oil prices. Oil prices continued Friday's slide due to ongoing concern over excessive supply after last week's US rig count grew for the first time since December 2015. This implies pressure on "commodity-driven" assets, which includes Indonesian stocks and the rupiah. The Indonesian rupiah had depreciated 0.27 percent to IDR 13,152 per US dollar (Bloomberg Dollar Index), while the benchmark Jakarta Composite Index was down 0.07 percent by 09:15 am local Jakarta time.

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Stock markets in Asia as well as Asian emerging market currencies should perform well today after the US Federal Reserve left rates unchanged at its March policy meeting. Moreover, the central bank of the world's largest economy stated that it expects fewer rate hikes in the coming months (dovish outlook) as economic recovery of the USA is still fragile amid slower global growth and turmoil in world markets linked to low oil price. As a result risk sentiment improved sharply, while the US dollar suffered losses.

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The Indonesian rupiah is extending its strong performance. On Monday morning (14/03), Indonesia's currency has been flirting with the IDR 13,000 per US dollar level. According to the Bloomberg Dollar Index, the rupiah had appreciated 0.48 percent to IDR 13,012 by 09:25 am local Jakarta time. The rupiah is one of the "commodity-sensitive" currencies that are feeling the positive impact of rising crude oil prices. Meanwhile, Indonesia's benchmark Jakarta Composite Index rose 0.52 percent after opening of trade on Monday.

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Indonesia's economic growth in the first quarter of 2016 could reach 5 percent (or more) year-on-year provided that the government manages to optimize spending on infrastructure projects and improve people's purchasing power. Large drops in domestic car and motorcycle sales so far this year show that Indonesia's purchasing power remains bleak. Other indicators - such as cement and retail sales - are also not too strong. Firmanzah, economist at the Paramadina University, said the 0.09 percent (m/m) deflation that occurred in February could be a sign of further weakening purchasing power.

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The Indonesian rupiah is flirting with the IDR 13,000 per US dollar level on Monday (07/03) supported by improving risk appetite of investors. By 13:40 pm local Jakarta time, the currency of Indonesia had appreciated 0.64 percent to IDR 13,047 per US dollar (Bloomberg Dollar Index). The rupiah is now on a 13-day 'winning streak', its longest rally in six years, and is the second-best performing emerging market currency after Brazil's real so far this year. What is behind this good performance, and is it sustainable?

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In line with other Asian indices, Indonesian stocks rose on Tuesday (26/05). The benchmark Jakarta Composite Index rose 0.62 percent to 5,320.90 points. Positive sentiments did not originate from the USA as US stock markets were closed for a holiday yesterday but primarily stemmed from China where the economic planning agency announced to implement several new policies in a bid to boost the sluggish economy. The rupiah, however, depreciated 0.25 percent to IDR 13,220 per US dollar based on the Bloomberg Dollar Index.

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Although most emerging market stocks fell, Indonesian stocks and the rupiah showed a solid performance on Thursday (21/05). The rupiah appreciated 0.40 percent to IDR 13,122 per US dollar according to the Bloomberg Dollar Index, while the benchmark stock index of Indonesia (Jakarta Composite Index) rose 0.39 percent to 5,313.21 points. Most emerging stocks fell due to weak data from China (despite a series of stimulus). However, Indonesian stocks were supported by news about its credit rating and dividend announcements.

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Investors are clearly waiting for results of Bank Indonesia’s Board of Governor’s Meeting, conducted today (19/05). In this monthly policy meeting, Indonesia’s central bank will decide on its monetary approach. For most market participants it is of crucial importance to learn whether Bank Indonesia will adjust its interest rate policy in order to support the country’s economic growth (which slowed to a five-year low in the first quarter of 2015). Ahead of results, scheduled to be released this afternoon, Indonesian stocks and the rupiah weaken.

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Over the last year, the Indonesian rupiah has been rising when compared to a wide variety of world currencies. Some of the more pronounced strength has been seen against the US dollar, which has been travelling in the opposite direction for most of the same period. To many investors that are focused on the currency markets, it might appear as though these two currencies are largely unrelated. But when we look at the trends that have been developing over the last year, it quickly becomes clear that this is just not the case.

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Ahead of the release of Indonesia’s official first quarter GDP growth figure (scheduled to be released in the first week of May), Indonesian stocks fell and the rupiah depreciated (slightly) against the US dollar on the back of weak market sentiments that have plagued Indonesian markets over the past week. Most importantly, weaker-than-expected Q1-2015 corporate earnings reports of listed Indonesian blue chips have made market participants concerned that Indonesia’s economic slowdown has continued into the first quarter of 2015.

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After Indonesia’s political year of 2014 ended, financial institutions expect to experience better times in 2015. Last year, economic growth of Indonesia slowed to a five-year low of 5.02 percent (y/y) due to weak exports, the high domestic interest rate environment, and political uncertainties caused by Indonesia’s legislative and presidential elections. This year, however, economic growth is expected to accelerate - albeit slightly - implying stronger purchasing power. One of the businesses that will profit is mutual fund management.

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On March 31, 2015, Bank Indonesia issued regulation number 17/3/PBI/2015 concerning Mandatory Use of Rupiah in the Territory of Indonesia (BI Regulation). In the much discussed Law number 7 of 2011 concerning Currency the mandatory use of rupiah in Indonesia was already regulated, however could be exempted in case the contract parties had agreed in writing to the terms of payment in a currency other than rupiah. Under the new BI regulation the terms on the use of foreign currencies are further restricted. In this column we discuss the most important changes based on the BI Regulation.

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Over the past week, the Indonesian rupiah continued to appreciate against the US dollar. Based on the Bloomberg Dollar Index, the rupiah appreciated 0.07 percent to IDR 12,850 per US dollar on Friday (17/04). Only a month ago, investors and policymakers were alarmed when the rupiah touched IDR 13,245 per US dollar, a 17-year low. This column discusses the factors that caused the strengthening of the rupiah in recent weeks. However, amid looming further monetary tightening in the USA, this development should be short-term only.

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When we look at market activity in the Indonesian rupiah, some very clear trends have started to emerge. When viewed against the US dollar the rupiah has seen pronounced weakness over this time frame. Many investors have started to view this activity as overdone and we have started to see analyst forecasts calling for more strength in the rupiah over the next few months. But there are also arguments that can be made against this outlook and it will be important for those investing in Indonesian assets to understand some of these factors, so that proper positioning can be undertaken.

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The central bank of Indonesia (Bank Indonesia) stated that, besides global volatility caused by uncertainty about the timing of higher US interest rates, the rupiah has been - and remains - under pressure due to Indonesia’s increasing private sector debt and the wide current account deficit. Moreover, as subsidiaries of multinational companies in Indonesia tend to send back dividends to the foreign parent companies in the second quarter (implying rising US dollar demand), the rupiah is plagued by additional pressures up to June.

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