The Indonesian rupiah exchange rate is depreciating sharply on Thursday (12/02). By 12:10 pm local Jakarta timezone, the currency had fallen 1.11 percent to IDR 12,865 per US dollar (Bloomberg Dollar Index). Market participants have become increasingly concerned about a Greek default or exit from the Eurozone and react by selling emerging market assets in search of safe havens such as the US dollar. Yesterday (11/02), the Eurozone’s finance ministers could not reach agreement on the Greek debt situation.

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Despite further slowing economic growth in 2014 and possible rupiah depreciation ahead of higher US interest rates later this year, global ratings agency Moody’s Investor Service said that the outlook for Indonesian companies is stable in terms of foreign exchange risks. Brian Grieser, Vice President and Senior Analyst of Corporate Finance at Moody’s, believes that weak rupiah performance is manageable for most of these companies. Starting from mid-2013, Indonesia’s rupiah has depreciated significantly amid US monetary tightening.

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Indonesia’s rupiah exchange rate weakened on Friday’s trading day (30/01) in line with the performance of several other Asian currencies. South Korea’s won fell on strengthening expectations of an interest rate cut and Japan’s yen declined on the slowdown of government bond sales. For market participants these were reasons to purchase US dollars at the expense of the rupiah. Indonesia’s currency had depreciated 0.41 percent to IDR 12,633 per US dollar based on the Bloomberg Dollar Index at 2:35 pm local Jakarta time.

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The Indonesian government, central bank (Bank Indonesia) and Commission XI of the House of Representatives (DPR) agreed to revise several macroeconomic targets in the Revised 2015 State Budget (APBN-P 2015). The revisions include the country’s economic growth (GDP) pace, the average rupiah exchange rate, and inflation target. In essence, the revisions indicate that Indonesian authorities have become less optimistic about the Indonesian economy in 2015 amid external pressures.

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Indonesian stocks and rupiah exchange rate weakened significantly at the start of the new week amid profit taking and political uncertainties in the Eurozone as Greece’s anti austerity party Syriza posts a clear victory in the country’s legislative election (although failing to obtain an absolute majority). The benchmark stock index of Indonesia fell 1.90 percent in the first trading session on Monday (26/01), while the rupiah had depreciated 0.60 percent to IDR 12,534 per US dollar at noon (Bloomberg Dollar Index).

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Despite having intervened to support the rupiah exchange rate, Indonesia’s central bank announced that the country’s foreign exchange reserves rose USD $800 million to USD $111.9 billion at the end of December 2014. The rise was primarily due to foreign exchange income from Indonesia’s oil and gas exports as well as the withdrawal of government’s foreign debt. Tirta Segara, Executive Director of Bank Indonesia, said that foreign exchange savings and banks swaps with Bank Indonesia had also increased at the end of 2014.

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The Indonesian rupiah exchange rate appreciated against the US dollar on Thursday (08/01) amid mostly strengthening Asian equity and currency markets as a number of positive market sentiments arose (specifically the release of the Federal Reserve’s December minutes). According to the Bloomberg Dollar Index, Indonesia’s rupiah appreciated 0.48 percent to IDR 12,674 per US dollar. Meanwhile, Indonesia’s benchmark Jakarta Composite (stock) Index was up 0.25 percent (5,221.89 points) at the end of today’s trading day.

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Indonesia’s rupiah exchange rate continued to depreciate on Wednesday (07/01). Based on the Bloomberg Dollar Index, the currency had depreciated 0.66 percent to IDR 12,731 per US dollar by 15:50 pm local Jakarta time amid prolonged weak global sentiments. Falling oil prices signal sluggish global economic growth - with the exception of the US economy which is showing structural recovery and thus fuels expectation of higher US interest rates - and speculation that Greece may exit the Eurozone.

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The Indonesian rupiah exchange rate is experiencing a weak start of the New Year. According to the Bloomberg Dollar Index, Indonesia’s currency had depreciated 1.26 percent to IDR 12,543 per US dollar by 13:35 pm local Jakarta time on Friday (02/01). However, this weak performance is in line with the performance of other emerging Asian currencies against the US dollar on today’s trading day (amid an improving US economy), thus extending the depreciating trend that started in the second half of 2014.

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On 28 December 2014, 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 rupiah exchange rate performance, a geothermal energy update, forecasts for Indonesia’s November trade balance and December inflation, as well as the breaking news story about the missing AirAsia airplane.

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On the first trading day of the new week, both Indonesian stocks and the rupiah moved more-or-less sideways. Generally, indices in Southeast Asia were mixed as positive external sentiments were offset by local negative sentiments. In the case of Indonesia, negative local sentiments stemmed from the higher-than-estimated inflation figure in May and continued contraction of the manufacturing industry. Positive market sentiments stemmed from the USA where GDP growth was revised to minus 0.7 percent in Q1-2015.

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Most stock markets and currencies in Southeast Asia weakened on Friday (29/05), including Indonesia’s benchmark Jakarta Composite Index and the rupiah. The Jakarta Composite Index fell 0.40 percent to 5,216.38 points, while the rupiah depreciated 0.01 percent to IDR 13,224 per US dollar according to the Bloomberg Dollar Index. Over the past week, Indonesian stocks and the rupiah weakened primarily due to the Greek debt crisis, looming higher US interest rates and the lack of positive domestic factors.

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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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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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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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Indonesia’s central bank (Bank Indonesia) decided to maintain its benchmark interest rate (BI rate) at 7.50 percent, the deposit facility rate at 5.50 percent and lending facility rate at 8.00 percent. This interest rate environment is considered to be in line with the central bank’s ongoing efforts to push the country’s inflation figure within its target of 4±1 percent for 2015 and 2016, as well as to control the country’s current account deficit towards a healthier level at 2.5-3 percent of gross domestic product (GDP) in the medium term.

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According to the latest data from Statistics Indonesia (BPS), Indonesia recorded monthly inflation of 0.17 percent in March 2015. It was the first month this year in which Indonesia recorded inflation. In January and February Indonesia experienced deflation of 0.24 percent (m/m) and 0.36 (m/m), respectively. March inflation was primarily the result of administered price adjustments: higher prices of (low-octane) gasoline, diesel and 12-kg LPG canisters. These adjustments were necessary amid rising oil prices and rupiah depreciation.

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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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Indonesia’s central bank (Bank Indonesia) decided to hold the country’s key interest rate (BI rate) at 7.50 percent, the deposit facility rate at 5.50 percent, and the lending facility rate at 8.00 percent at the Board of Governor’s Meeting conducted on Tuesday 17 March 2015. Bank Indonesia said that its decision is in line with its ongoing efforts to push inflation back to the target range of 4±1 percent for both 2015 and 2016, and to guide the country’s current account deficit towards a healthier level at 2.5-3 percent of GDP in the medium term.

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