The central bank of Indonesia (Bank Indonesia) announced on Friday (06/03) that the country’s official foreign exchange reserves stood at USD $115.5 billion at end-February 2015, up from USD $114.2 billion in the preceding month. The growth was primarily the consequence of improved oil & gas export revenues, and which exceed payments of the government’s external debts. The news caused positive sentiments on Indonesia’s markets and contributed to the record high closing of Jakarta Composite Index on Friday.

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As the Indonesian rupiah exchange rate depreciated beyond the psychologically-sensitive IDR 13,000 per USD threshold on Wednesday (05/03), both Indonesian Finance Minister Bambang Brodjonegoro and Bank Indonesia Governor Agus Martowardojo stated that there is no need for panic as the performance of the rupiah against the US dollar is still in line with the performance of other currencies versus the US dollar. Based on the Bloomberg Dollar Index, the rupiah had depreciated 0.28 percent to IDR 13,028 by 13:35 pm local Jakarta time.

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While most Southeast Asian stock markets and emerging Asian currencies strengthened on Tuesday (03/03) on the back of a rebounding yen and - contrary to expectation - the decision of the Reserve Bank of Australia (RBA) to leave its cash rate a record low of 2.25 percent, Indonesian stocks and the rupiah performed rather flat. The benchmark Jakarta Composite Index fell 0.06 percent to 5,474.62 points, while the Indonesian rupiah rate appreciated 0.01 percent to IDR 12,969 according to the Bloomberg Dollar Index.

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The Indonesian rupiah - in line with other emerging Asian currencies - feels the negative impact of China’s interest rate cut. According to the Bloomberg Dollar Index, the rupiah had depreciated 0.40 percent to IDR 12,984 per US dollar at 11:10 am local Jakarta time on Monday (02/03), coming very close to the psychological boundary of IDR 13,000. Last Saturday (28/02), China’s central bank announced to cut its one-year deposit rate and the one-year lending rate by 25 basis points each to 2.50 percent and 5.35 percent, respectively.

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On 1 March 2015, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve economic matters such as a forecast for February inflation, an analysis of the rupiah exchange rate, news from the coal mining and palm oil sectors, Islamic finance, the IPO of Mitra Keluarga Karyasehat, and more.

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Indonesian inflation is expected to have eased further in February 2015 on lower food prices. One notable exception, however, is rice. Rice prices have soared approximately 30 percent year-on-year (y/y) up to IDR 12,000 per kilogram in February. Higher rice prices have been caused by distribution obstacles for Raskin (‘rice for the poor’) operations in combination with this year’s late harvest season (between March and June). Fluctuation in prices of rice, the staple food of 250 million Indonesians, has a significant impact on inflation in Indonesia.

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The Indonesian rupiah exchange rate depreciated 0.79 percent to IDR 12,932 per US dollar according to the Bloomberg Dollar Index on Friday (27/02), its weakest level since end 2008, after the country’s central bank (Bank Indonesia) said it would not intervene too much to support the currency. Bank Indonesia said that it has no target level for the rupiah and will not go against the market. For the market these are signals that the central bank is comfortable with a weaker currency as that would improve the trade balance.

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After Federal Reserve Chairwoman Janet Yellen indicated that the US central bank will be patient in raising the interest rate environment in the world’s largest economy, Indonesian assets gained on Wednesday (25/02). Both the benchmark Jakarta Composite Index and rupiah exchange rate strengthened 0.51 percent yesterday. Apart from increased speculation that the Fed will not raise interest rates before summer, expectation that Greece will avoid a disastrous default brought more positive market sentiments.

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Indonesia’s rupiah depreciated to its lowest level since mid-December 2014 nearly touching the psychological level of IDR 13,000 per US dollar ahead of Federal Reserve Chairwoman Janet Yellen appearance before the US Senate Banking Committee and the US Congress (in a two-day meeting) to elaborate on the Fed’s stance on US interest rates. As US jobless claims fell more than expected, analysts believe that it will not take long before the US central bank introduces higher borrowing costs in the world’s largest economy.

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In line with most Southeast Asian stock markets and currencies, Indonesian stocks and the rupiah were rather flat with a tendency to weaken slightly on Tuesday (17/02). Most investors seem to avoid trading in this short trading week (On Thursday 19 February markets will be closed due to Chinese New Year celebrations). Moreover, market participants in Indonesia are waiting for the central bank’s interest rate decision later today. Lastly, failed talks between Greece and its creditors on Monday dented sentiment across Asia.

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Although the gap on 4,575-4,579 was closed, Indonesia's benchmark stock index (Jakarta Composite Index or IHSG) was given limited room to go up further as the performance of global stock indices did not support a bigger rebound. On the contrary, despite the 0.37 percent rise of the IHSG to 4,601.28 points on Tuesday (04/03), there are still pressures that may push the index down in the days ahead. Amid the political conflict in the Ukraine, Wall Street fell on Monday (03/03), which led to profit taking in the first trading session.

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The Indonesian rupiah exchange rate had depreciated (0.15 percent) to IDR 11,665 per US dollar on Thursday (27/02), 15:00 local Jakarta time, based on the Bloomberg Dollar Index. Governor of Bank Indonesia Agus Martowardojo stated yesterday to expect the currency to stabilize near current levels in line with its economic fundamentals ahead of looming further Federal Reserve tapering. Analysts estimate that Indonesia's trade balance might deteriorate in January 2014 as the impact of the mineral-ore export ban kicks in.

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When there are few positive sentiments that can push Indonesia's benchmark stock index (Jakarta Composite Index, also known as IHSG) into higher territory there is always the risk of downreversal due to profit taking. Particularly as the IHSG has shown a steady rising trend in recent weeks. The IHSG's decline on Monday (24/02) was influenced by falling Asian indices after a sell off of property and construction stocks emerged. The continued appreciation of the Indonesian rupiah exchange rate was also unable to provide enough support for the index.

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The central bank of Indonesia (Bank Indonesia) is optimistic that the country's currency will continue to appreciate against the US dollar in the first quarter of 2014. Executive Director at the Economic and Monetary Policy Department of Bank Indonesia Juda Agung said that there are two factors that impact positively on the performance of the Indonesian rupiah exchange rate: the improved global economy and strengthening domestic economic fundamentals. However, Agung declined to estimate the value of the rupiah by the end of Q1-2014.

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After Indonesia's outlook for economic growth in 2014 was revised down from 6 percent to between 5.8 and 6 percent, the government also revised targets of poverty and unemployment reduction. In the 2014 State Budget (APBN 2014), the government set the targeted poverty rate at 9.0 to 10.5 percent of Indonesia's total population. However, the government revised down this poverty rate to between 10.54 and 10.75 percent, which is also far below the target that was set in the National Medium Term Development Plan (RPJMN) at 8 to 10 percent.

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Despite being - technically - overbought, the Jakarta Composite Index (Indonesia's benchmark stock index also known as the IHSG) continued its upward trend on Wednesday (19/02). Moreover, as market sentiments have turned less positive due to data from Europe and the USA (causing European and American indices to slow down) as well as a depreciating rupiah exchange rate, there was a sincere risk of a weakening IHSG today. However, contrary to our expectations, the IHSG rose 0.80 percent to 4,592.65 points.

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As we have explained before, a significant amount of market participants will engage in profit taking after a day (or in this case a number of days) of gain. Mixed sentiments originating from the Asian continent, particularly Japan and China, as well as the depreciating Indonesian rupiah exchange rate contributed to the slight gain of Indonesia's benchmark index (known as the Jakarta Composite Index or IHSG). The IHSG rose 0.02 percent to 4,556.19 points on Tuesday (18/02).

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The Jakarta Composite Index (Indonesia's benchmark stock index, also known as IHSG) continued its upward rally on Monday (17/02) even though it had concerned us that the index almost touched its 'overbought' level. Especially as the index posted limited gain by the end of last week, it made us unsure about its performance on Monday. And while there are several factors that caused positive market sentiments, we still warn for potential weakening of the index due to profit taking. On Monday (17/02), the IHSG rose 1.05% to 4,555.37 points.

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The Indonesian rupiah exchange rate continued its recent appreciating trend on Monday (17/02). Based on the Bloomberg Dollar Index, the currency strengthened 0.39 percent to IDR 11,785 per US dollar at 16:00 local Jakarta time. Main reason for this renewed confidence in the rupiah is Indonesia's current account deficit, which eased significantly by the end of 2013. According to Bank Indonesia, the deficit eased from 4.4 percent of gross domestic product (GDP) in the second quarter of 2013 to 1.98 percent of GDP in Q4-2013.

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The weakening Dow Jones Index on Wednesday (12/02) caused negative market sentiments in Asia the following day. Most Asian indices, including Indonesia's Jakarta Composite Index (IHSG), were down. Not even the announcement that Bank Indonesia decided to maintain its benchmark interest rate (BI rate) at 7.50 percent was able to push the IHSG back in the green zone. Investors probably already anticipated the central bank's decision as it was in line with the market's expectation.

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