In the latest edition of the East Asia Pacific Economic Update, released on Monday (13 April 2015), the World Bank revised down its economic growth forecast for developing East Asia & China to 6.7 percent year-on-year (y/y) in 2015 and 2016 from its previous assumption of 6.9 percent growth (y/y) in 2015 and 6.8 percent (y/y) in 2016. The main reason for this downward revision is the global uncertain economic context, which includes the impact of looming higher US interest rates and the appreciating US dollar.

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Minutes of the Federal Reserve’s latest FOMC meeting (17-18 March), released Wednesday (08/04), show that the US central bank is divided about the timing of higher US interest rates. Several policymakers would approve such an interest rate hike in June 2015, while others would prefer to see rates increase later this year or even next year as they consider that the US economy is still not strong enough yet. However, when reading the minutes there are some signs suggesting that the institution is on course to raise its key rate this year.

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Investors in Asian markets should not be overly concerned about slowing economic growth in China or bullish US dollar momentum ahead of higher US interest rates as economic growth rates in this region are still significantly higher than in other parts of the world. Thanks to a burgeoning middle class segment (which constitutes a strong consumer force), Asia has great prospects for the long-term. This is the message conveyed in the words of Christophe Palumbo, Senior Business Development Manager at Aberdeen Asset Management.

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Indonesian stocks and the rupiah are performing well on Monday’s trading day (06/04) after weak US economic data suggests that the US central bank (Federal Reserve) will still refrain from raising its key interest rate too soon. Weaker-than-expected US jobs data caused that most Southeast Asian stock markets strengthened today. Moreover, the rupiah also felt the positive impact. According to the Bloomberg Dollar Index, the rupiah had appreciated 0.54 percent to IDR 12,950 per US dollar by 15:17 pm local Jakarta time.

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In the past couple of days the US dollar regained its bullish momentum, strengthening against most other currencies including the Indonesian rupiah. The greenback had been under pressure after the Federal Reserve signalled - contrary to markets expectation - it would not raise the US interest rate environment too soon as the US economic growth outlook and US inflation were still not at the right level yet. This made emerging market assets more attractive for the short-term. However, this development seems to have been short-lived.

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The Indonesian government may raise the price of subsidized gasoline for April 2015 as the Indonesian Crude Price (ICP) rose through February and March from USD $52 per barrel to USD $57 per barrel based on data from the upstream oil & gas regulator SKK Migas. After the Indonesian government drastically reduced fuel subsidy spending at the start of 2015, subsidized gasoline prices are now set each month, in line with price fluctuations on the world market. For subsidized diesel the government provides a fixed IDR 1,000 per liter.

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Indonesia’s rupiah exchange rate started the week on a firm tone as the US dollar weakened amid uncertainty over the timing of higher US interest rates. Contrary to initial expectation, the latest Federal Reserve meeting (held on 17-18 March) did not indicate that there will be a quick interest rate hike in the world’s largest economy hence boosting appetite for emerging market assets. In addition, the Indonesian government and central bank (Bank Indonesia) pledged to safeguard rupiah stability.

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Apparently, the Federal Reserve’s message that it would still wait before raising US interest rates only implied a brief weakening of the US dollar against emerging Asian currencies. On Friday (20/03), the Indonesian rupiah depreciated 0.51 percent to IDR 13,124 per US dollar according to the Bloomberg Dollar Index. Current high volatility is also the result of different policies being executed by different central banks. Whereas the US Federal Reserve aims to further tighten monetary policy, central banks in Japan and Europe do the opposite.

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Indonesian stocks and the rupiah exchange rate strengthened rapidly on Thursday (19/03) after the Federal Reserve refrained from raising its key interest rate at the two-day FOMC meeting that ended on Wednesday (18/03) as US inflation is still tame while US economic growth somewhat moderated. The US central bank signaled that it is not in a hurry to raise interest rates, but, on the other hand, it also dropped the word ‘patient’ from its guidance on interest rates (which have been at historic lows since late 2008).

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Regarding Indonesia, the spotlight remains sharply focused on the drastically depreciating rupiah exchange rate. As speculation is growing that the US Federal Reserve will soon raise its interest rate regime, emerging market assets (both currencies and stocks) tend to weaken. However, although most Asian emerging currencies are weakening against the US dollar, the rupiah is particularly vulnerable as Indonesia is plagued by a wide current account deficit, which informs investors that the country is relying on foreign capital inflows.

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Throughout the morning, the Indonesia rupiah exchange rate showed volatile movement on Tuesday (10/12). In the Bloomberg Dollar Index, the currency was up 0.45 percent to IDR 11,920 per US dollar at 16:20:51 local Jakarta time. The rupiah's performance is volatile because negative sentiments are brought on by improving economic data from the USA, causing a strengthening US dollar, while positive market sentiments are brought on by the new fiscal policies that were announced by the Indonesian government.

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After appreciating on Monday morning (09/12), the Indonesia rupiah exchange rate started to weaken against the US dollar in the afternoon. At 15:10:29 local Jakarta time, the rupiah stood at IDR 11,970 per US dollar in the Bloomberg Dollar Index, a 0.05 percent depreciation from the start of the day. The rupiah exchange rate is fluctuating due to positive sentiments caused by Indonesia's October trade surplus as well as China's low inflation and negative sentiments brought on by the looming end of the Federal Reserve's quantitative easing program.

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In the morning of Thursday (05/12), Indonesia's rupiah exchange rate depreciated beyond the psychological level of IDR 12,000 per US dollar. In the Bloomberg Dollar Index, the rupiah fell 0.2 percent to IDR 12,011 as of 09:19:49. The main factor behind this decline is market participants' concerns about the end of the Federal Reserve's monthly USD $85 billion bond buying program. It is increasingly speculated that the winding down of this program will start sooner than expected.

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The continued presence of negative market sentiments made it impossible for Indonesia's Jakarta Composite Index (IHSG) to rebound. The looming end of the FED's quantitative easing program - which may be wound down sooner than expected - is a big cause for concern. The depreciating Indonesia rupiah exchange rate intensifies these concerns, particularly regarding companies that have exposure to volatile US dollar movements. Furthermore, investors are waiting for further US economic data as well as for Bank Indonesia's next meeting.

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Various factors contributed to the 2.30 percent decline of the Jakarta Composite Index (IHSG) on Tuesday (26/11). The index in fact fell below its support level. What were the main reasons for this weak performance? Firstly, the Indonesian rupiah exchange rate has been depreciating severely and causes concerns among market players. Secondly, most Asian stock indices fell as valuations climbed high and the Japanese Yen strengthened. Thirdly, European stock openings on Tuesday were weak. All these reasons together led to foreign net selling.

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The Jakarta Composite Index (Indonesia's benchmark stock index, abbreviated IHSG) made a positive start on Monday (25/11). Investors were confident amid today's rising indices throughout Asia, brought on by the record breaking Dow Jones Index on Wall Street at the end of last week. However, this market optimism failed to provide a significant boost to the IHSG as the Indonesian rupiah exchange rate continued its downward spiral. The IHSG was up 0.39 percent to 4,334.80 points at the end of Monday's trading day.

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On Thursday's trading day (21/11/13), the Jakarta Composite Index (Indonesia's benchmark stock index, or IHSG) fell 0.56 percent to 4,326.21 points as investors are concerned seeing the result of the latest Federal Open Market Committee (FOMC) meeting, which seems to indicate that the Federal Reserve's monthly USD $85 billion bond-buying program (quantitative easing) will be wound down within a couple of months. The IHSG was also negatively affected by the lower preliminary HSBC Manufacturing PMI of China.

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Indonesia's Jakarta Composite Index (IHSG) started Tuesday's trading day (12/11) slightly in the red. However, after the central bank of Indonesia (Bank Indonesia) announced to have raised its benchmark interest rate (BI rate) by 25 bps to 7.50 percent, the IHSG quickly plunged. The interest rate hike is considered as a sign that Bank Indonesia is still concerned about the nation's macroeconomy, particularly Indonesia high inflation (8.32 percent yoy in October 2013). The index fell 1.38 percent to 4,380.64 points.

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The Jakarta Composite index (Indonesia's benchmark stock index or IHSG) fell on Monday (11/11) amid mixed Asian markets. Not even positive finishes on Wall Street last Friday (08/11) were able to support the IHSG. Most investors seem to be waiting for results of Bank Indonesia's Board of Governor's Meeting which is scheduled for Tuesday (12/11). This meeting will provide answers about the central bank's view of the domestic economy and whether it thinks another adjustement of the BI rate is necessary.

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After the one-day holiday due to the Islamic new year, Indonesia's benchmark stock index (Jakarta Composite Index or IHSG) started in the red on Wednesday (06/11) amid the continued depreciation of the rupiah exchange rate against the US dollar and the mixed performance of Asian stock indices (influenced by weakening global indices on the previous day). However, during the day a number of stocks, which had fallen previously, became popular investment targets, which supported the index.

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