The Indonesia rupiah exchange rate is moving sideways on Wednesday's trading day (08/01). At 13:00 local Jakarta time, the rupiah was down 0.02 percent to IDR 12,240 per US dollar based on the Bloomberg Dollar Index. This morning the US dollar slightly depreciated against most Asian currencies after the International Monetary Fund (IMF) said to plan to upgrade its forecast for global economic growth as the US economy improves. Yesterday, Indonesia held Asia's largest US dollar-denominated bonds since 1998.

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In line with most other Asia-Pacific currencies, the Indonesia rupiah exchange rate continued its depreciating trend against the US dollar on Tuesday morning (07/01). Market participants tend to avoid the rupiah and prefer to wait & see for international data first. For example, today's release of the minutes of the Federal Open Market Committee (FOMC). This will inform about the stance of Federal Reserve officials on the winding down of the quantitative easing program (planned for this January).

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Supported by legislative and presidential elections, car sales in Indonesia are expected to grow between five and ten percent to 1.30 million total vehicles in 2014. These elections are estimated to boost the domestic money flow due to increased economic activity in Southeast Asia's largest economy. Consumption goods such as cars and food & beverage products are expected to feel the impact of this development and may offset the negative impact brought on by the weak rupiah, high inflation and the high interest rate environment.

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On Thursday (02/01), Statistics Indonesia (BPS) released the December 2013 inflation figure of Indonesia as well as the calender inflation rate for full-year 2013. Higher food prices and house prices were the main contributors to the 0.55 percent inflation rate in December 2013. Seasonal celebrations, like Christmas and New Year, always translate into higher inflationary pressures in Southeast Asia's largest economy. Higher fuel prices were the main contributor to the 8.38 percent inflation rate in full-year 2013.

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In order to support Indonesia's sharply depreciated rupiah exchange rate, the central bank of Indonesia (Bank Indonesia or BI) improved provisions for Hedge Swap Transactions through Bank Indonesia Regulation No.15/17/PBI/2013 (which takes effect as of 3 February 2014). Through this arrangement, Indonesian banks can sell their US dollars to BI at the current spot rate and promise to buy the amount at a later date on an agreed rate. This protects banks against fluctuations in the rupiah exchange rate.

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Ahead of the new year, the Indonesia rupiah exchange rate continues its downward trend on Monday (30/12). Bank Indonesia's Jakarta Interbank Spot Dollar Rate (JISDOR) fell to IDR 12,270 per US dollar from IDR 12,260 on the previous trading day. Due to the improving US economy, the US dollar keeps appreciating against the majority of emerging currencies. At most local Indonesian banks, the rupiah is traded significantly above the psychological level of IDR 12,000 per US dollar.

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The Indonesia rupiah exchange rate continued its downward trend on Monday (23/12). Both Bank Indonesia's Jakarta Interbank Spot Dollar Rate (JISDOR) and Bloomberg's Dollar Index showed a depreciating rupiah. The JISDOR, which was launched by Bank Indonesia in May to manage exchange rate fluctuations, fell 0.01 percent to IDR 12,246 per US dollar, while the Bloomberg Dollar Index indicated a 0.29 percent decline of the rupiah to IDR 12,250 per US dollar at 14:10:09 afternoon, local Jakarta time.

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Deputy Trade Minister Bayu Krisnamurthi said that the Indonesian government is preparing two strategic steps to anticipate the negative impact of the winding down of the Federal Reserve's quantitative easing program. In January 2014, the Fed's bond-buying program will be reduced from USD $85 billion to USD $75 billion per month. The two strategic steps, which will enhance financial stability in Southeast Asia's largest economy, involve the curtailing of Indonesia's current account deficit and high inflation.

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Indonesia's Finance Minister Chatib Basri expects that Indonesia's economic growth in 2013 will reach 5.7 percent, significantly below the government's initial target of 6.3 percent. Basri announced his expectation at the government's economic evaluation and projection meeting. According to Basri, Indonesia's economic growth is stable, despite its slowing trend. Among the G20 member countries, only China will post higher GDP growth (7.8 percent up to the third quarter). Indonesia's inflation rate is expected to reach 8.5 percent (yoy) at the year-end.

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The central bank of the United States, the Federal Reserve (FED), announced that it will start winding down its quantitative easing program in January 2014. Currently, the Fed purchases USD $85 billion worth of bonds per month but this amount will be reduced to USD $75 billion next month. The Fed came to this decision as prospects of the US labor market have shown a marked improvement, while economic growth is expected to accelerate to between 2.8 and 3.2 percent in 2014 and between 3.0 to 3.4 percent in 2015.

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The Indonesian rupiah exchange rate continued to depreciate further on Wednesday (04/06). According to the Bloomberg Dollar Index, the currency of Indonesia had weakened 0.38 percent to IDR 11,855 per US dollar by 15:00pm local Jakarta time. The depreciation occurred due to US dollar demand from local importers for payments and renewed concern about the country's trade balance. Today's performance of the rupiah is in line with the performance of other Asian currencies as investors return to the US dollar on higher US yields.

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Supported by enthousiastic foreign investors, the benchmark stock index of Indonesia (Jakarta Composite Index or also known as IHSG) managed to climb 0.61 percent to 4,942.16 points on Tuesday (03/06). Particularly consumer, trade and mining stocks were popular on today's trading day. It is interesting to note that this growth happened amid sharp rupiah depreciation as the currency still feels the negative impact of the USD $1.97 billion April 2014 trade deficit that was released yesterday (02/06).

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Although initially the benchmark stock index of Indonesia (known as Jakarta Composite index or IHSG) fell after the market responded to today's release of Indonesia's April trade deficit and May inflation, the index ended in the green zone due to foreign net buying and general positive Asian indices (influenced by higher stock indices on Wall Street at the end of last week). Particularly Indonesia's big cap stocks in the miscellaneous industry and consumer sectors were popular as these were relatively cheap after having tumbled at the end of last week.

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The Indonesian rupiah exchange rate depreciated 0.77 percent to IDR 11,766 per US dollar on Monday (02/06) based on the Bloomberg Dollar Index. From the start of trading the currency of Southeast Asia's largest economy immediately plummeted as market participants anticipated a trade deficit in April 2014. Last Friday, the central bank of Indonesia (Bank Indonesia) announced that it expects Indonesia to post a deficit in April, whereas earlier statements of the central bank had mentioned a slight surplus.

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Asian stocks declined on Friday's trading day (30/05) after a government report showed that the US economy - the world's largest economy - shrank by one percent (year-on-year) in the first quarter of 2014, the country's first contraction since early 2011. The contraction was far worse than the initial forecast at 0.1 percent. The main cause of the contraction was the severe winter that hit the USA. The benchmark stock index of Indonesia (Jakarta Composite Index) fell 1.84 percent to 4,893.91 points on Friday (30/05).

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Based on Bank Indonesia's benchmark rupiah exchange rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR), the Indonesian rupiah exchange rate depreciated 0.44 percent this week. Although Asian currencies have been largely supported by renewed capital inflows as investors are optimistic that central banks across the globe continue to provide stimulus to boost local economies, the rupiah has been under pressure due to various domestic issues. These issues include politics as well as fuel subsidies.

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The Indonesian rupiah exchange rate continued its recent depreciating trend on Wednesday (28/05). According to the Bloomberg Dollar Index, the currency had depreciated 0.46 percent to IDR 11,633 against the US dollar at the end of the trading day. The rupiah's performance is in line with the general trend in Asia where most currencies lost ground to the greenback on today's trading day. As various US economic data indicate a continued recovery of the US economy, the market expects more US monetary tightening.

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The Indonesian rupiah exchange rate continued to depreciate further on Monday’s trading day (26/05). Based on the Bloomberg Dollar Index, the currency of Indonesia had depreciated 0.17 percent to IDR 11,595 per US dollar by 1pm local Jakarta time. On Monday morning the US dollar was strengthening against most emerging currencies in Asia. Meanwhile, the central bank's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.63 percent to IDR 11,633 against the US dollar.

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On the last trading day of the week, the benchmark stock index of Indonesia (known as the Jakarta Composite Index of IHSG) rose 0.06 percent to the level of 4,973.06 points. Trading volume was low as investors are still carefully monitoring political and economic developments in Indonesia. Earlier in the week, political uncertainty increased when the country's second-largest political party (Golkar) decided to join the coalition that supports the Prabowo Subianto and Hatta Rajasa pair in the July presidential election.

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The Indonesian rupiah exchange rate is heading for its biggest weekly decline since the second week of December 2013. According to the Bloomberg Dollar Index, the currency of Southeast Asia's largest economy had depreciated 0.36 percent to IDR 11,572 per US dollar by 2.30pm local Jakarta time on Friday (23/05). However, year to date, the rupiah is still among the best performing Asian emerging currencies against the greenback (+5.19 percent). What are the reasons that explain the rupiah's weak performance this week?

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