On Thursday (08/10) most emerging market currencies and stocks in Asia weakened as investors engaged in profit-taking (after having witnessed a remarkable rally over the past couple of days), while waiting for the release of the Federal Reserve's policy meeting minutes (due later today). The Indonesian rupiah had weakened 0.33 percent to IDR 13,867 per US dollar based on the Bloomberg Dollar Index while the benchmark Jakarta Composite Index was down 0.04 percent 4,487.09 by 15:00 pm local Jakarta time.

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The central bank of Indonesia (Bank Indonesia) is set to announce the second installment of a policy package that aims at raising onshore US dollar supplies (and liquidity). As the rupiah has been the second worst-performing Asian emerging market currency (after Malaysia’s ringgit), having depreciated 18.1 percent against the US dollar so far in 2015, Indonesian policymakers are anxious to prop up the ailing currency in order to safeguard the country’s financial stability. Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) stood at IDR 14,690 per US dollar on Friday (25/09), a 17-year low.

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Based on data from the Inter Dealer Market Association, Indonesia’s ten-year sovereign bond yield climbed 31 basis points since 4 September 2015 to 9.24 percent, its highest level since 2010, on Friday morning (11/09) amid concern about the ailing rupiah. The rupiah has been under pressure as emerging market currencies have become unattractive ahead of a looming US interest rate hike and China’s recent decision to devalue its yuan (triggering concern about a currency war among Asia’s emerging currencies).

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Agus Martowardojo, Governor of Indonesia’s central bank (Bank Indonesia), said on Thursday (27/08) that the nation’s economic growth pace is expected to reach 4.89 percent (y/y) in full-year 2015, down from 5.0 percent (y/y) in the preceding year and it would mark the fifth straight year of economic slowing. Earlier this week, Bank Indonesia had already revised down its economic growth forecast to the range of 4.7 - 5.1 percent (y/y) in 2015 (from 5.0 - 5.4 percent previously).

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Last week, Indonesia’s central bank (Bank Indonesia) refrained from adjusting its relatively high interest rate regime as it is committed to support the ailing rupiah and combat high inflation. Another decision that was revealed by Bank Indonesia is the soon-to-be-introduced regulation that limits total (non-collateral) monthly US dollar purchases to USD $25,000 (down from USD $100,000 previously). This regulation will be implemented in a move to thwart speculators that want to take advantage of the weak and volatile rupiah.

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On 16 August 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 and political subjects such as the cabinet reshuffle, the 2016 State Budget draft, the current account balance, an analysis of the recent performance of the rupiah and Indonesian stocks, the coal industry, and more.

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The central bank of Indonesia (Bank Indonesia) announced on Friday (14/08) that the country’s current account deficit narrowed to USD $4.48 billion, or 2.1 percent of gross domestic product (GDP), in the second quarter of 2015. In the same quarter last year the deficit stood at USD $9.59 billion). As such, the current account deficit (CAD) has become more sustainable and this may provide some support for the rupiah which is currently facing tough times (ahead of a looming US interest rate and China’s yuan devaluation).

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The Indonesian rupiah continues to depreciate on Tuesday (11/08). By 11:16 am local Jakarta time, the rupiah had depreciated 0.14 percent to IDR 13,570 per US dollar according to the Bloomberg Dollar Index. Indonesia’s currency has been touching 17-year lows due to bullish US dollar momentum ahead of looming higher US interest rates. Today, the US dollar received additional strength as China allowed its currency to weaken to a three-year low, dragging down other currencies in the Asian region.

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Again, Indonesia’s rupiah is touching the IDR 13,400 per US dollar psychological boundary. According to the Bloomberg Dollar Index, Indonesia’s currency had depreciated 0.22 percent to IDR 13,405 per US dollar at 11:22 am local Jakarta time on Thursday (23/07), a level last seen when the country was still plagued by the Asian Financial Crisis in 1998. Crossing the psychological boundary could mean Indonesia’s central bank (Bank Indonesia) will intervene again to support the currency in order to safeguard people’s confidence in the currency.

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Indonesia recorded a USD $477 million trade surplus in June 2015, the country’s seventh consecutive trade surplus. However, according to the latest data from Statistics Indonesia (BPS), released on Wednesday (14/07), Indonesia’s June exports fell 12.8 percent (y/y) to USD $13.4 billion, while imports fell 17.4 percent (y/y) to USD $12.9 billion. These figures show that Indonesia’s trade surplus is primarily caused by weak domestic demand "outperforming" weak global demand, hence raising concerns about global and domestic economic growth.

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According to Fauzi Ichsan, Managing Director at Bank Standard Chartered Indonesia, there is a possibility that Indonesia's central bank (Bank Indonesia) will raise its benchmark interest rate (BI rate) from 7.50 percent to 8 percent at the next Board of Governor's Meeting as the country's current account deficit has not improved markedly yet. The deficit stood at about 3.5 percent of the country's gross domestic product (GDP) at the end of 2013. Bank Indonesia intends to lower the deficit to a sustainable level of below 3 percent in 2014.

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According to Indonesia's Finance Minister Chatib Basri, the country's trade deficit will continue between 2014 and 2016 (although expecting to show an easing trend) but will turn into a surplus from 2017 onwards. One of the most influential factors that will impact on the trade balance is Indonesia's raw ore export ban, in effect as of Sunday 12 January 2014. In the short term, this ban will limit Indonesia's exports but in the long term, from 2017 onward, it will lead to high added-value exports.

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ICRA Indonesia, an independent credit rating agency and subsidiary of ICRA Ltd. (associate of Moody's Investors Service), publishes a monthly newsletter which provides an update on the financial and economic developments in Indonesia of the last month. In the December 2013 edition, a number of important topics that are monitored include Indonesia's inflation rate, the trade balance, the current account deficit, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:

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Today, Bank Indonesia kept its benchmark interest rate (BI rate) at 7.50 percent at the Board of Governors’ meeting. The lending facility rate and deposit facility rate were maintained at 7.50 percent and 5.75 percent respectively. An assessment of the economy in 2013 and outlook for 2014-2015 indicated that such policy is consistent with ongoing efforts to keep inflation within the target of 4.5±1 percent in 2014 and 4±1 percent in 2015, as well as to help reduce the current account deficit to a sustainable level.

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Indonesia's ban on the export of unprocessed minerals, which is scheduled to take effect on 12 January 2014, is expected to lead to a temporary slowdown of Indonesia's total exports and thus will put more pressure on the country's current account deficit. Despite two consecutive months with trade surpluses (October and November 2013), Indonesia's wide current account deficit is still a concern to investors as well as the government although the deficit has shown an easing trend in recent quarters.

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Again positive news for Indonesia's trade balance. Last week, Statistics Indonesia announced that the largest economy of Southeast Asia posted a USD $776.8 million trade surplus in November 2013 (the largest monthly trade surplus since March 2012). After the (revised) USD $24 million trade surplus in October 2013, November was the second straight month in which the country posted a surplus. This development is important to gain investors' confidence as Indonesia's current account deficit has been a major cause for concern.

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As we approach the end of 2013 it is worth taking a look back to the performance of the stock market of Indonesia this year. At the start of the year, investors and analysts were positive that the country's benchmark stock index (known as the IHSG or Jakarta Composite Index) would post steady growth. Initial forecasts claimed that the IHSG could surpass the 5,000 points level by the end of 2013 from 4,300 at end-2012. The actual performance of the IHSG in fact exceeded expectations as in May 2013 the index moved beyond 5,200 points.

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The Indonesia rupiah exchange rate continued its downward trend on Wednesday (18/12). Both Bank Indonesia's Jakarta Interbank Spot Dollar Rate (JISDOR) and Bloomberg Dollar Index indicated a depreciating rupiah against the US dollar. Bank Indonesia's JISDOR was set at IDR 12,151 per US dollar, a 0.39 percent fall from yesterday (17/12), while in the Bloomberg Dollar Index the currency depreciated 0.35 percent to IDR 12,168 per US dollar at 16:55 in the afternoon, local Jakarta time.

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On Thursday 12 December 2013, Indonesia's central bank (Bank Indonesia) announced that the country's benchmark interest rate (BI rate) remains unchanged at the level of 7.50 percent in December 2013. This announcement was a bit surprizing as about 80 percent of analysts expected Bank Indonesia to raise the BI rate in order to support the depreciating Indonesia rupiah exchange rate. Starting the year at IDR 9,670 per US dollar, the rupiah has fallen around 25 percent to IDR 12,081 per US dollar.

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The central bank of Indonesia (Bank Indonesia) estimates that Indonesia's current account deficit will ease to 3.5 percent of the country's gross domestic product (GDP) by the end of 2013. Indonesia's wide current account deficit has been one of the major financial troubles this year and managed to weaken investors' confidence in Southeast Asia's largest economy. Thus, Indonesia became one of the hardest hit emerging countries after the Federal Reserve started to speculate about an ending to its quantitative easing program.

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