All Eyes on BI & The Fed, JCI Mighty Today?

Jakarta, CNBC Indonesia – The Composite Stock Price Index (JCI) ended last week with a slight decline. In contrast, the rupiah managed to record a sharp strengthening against the United States (US) dollar.

According to data from the Indonesia Stock Exchange (IDX), the JCI slightly weakened 0.08% to 6,922,602 during the past week. In the regular market, foreign investors are still making a net buy or net buy of Rp 1.3 trillion during the week.

However, in the negotiable and cash market, there was a net sell of almost Rp 12 trillion. The transaction value was recorded at Rp 108 trillion.

The war between Russia and Ukraine continued to weigh on global stock markets last week. Russian troops are reported to be getting closer to the Ukrainian capital, Kyiv, making market players sentiment worse since Thursday night which made the stock markets of Europe and the United States (US) plummet, Asian markets also followed yesterday.

Meanwhile, during last week, the rupiah recorded a 0.59% strengthening to Rp 14,300/US$. In Asia, the rupiah was the only one that strengthened last week. In fact, the Garuda currency had touched Rp. 14,240/US$. This level is the strongest since January 3, 2022.

Sentiment towards the rupiah is actually good, especially before the war between Russia and Ukraine began. This is because the rupiah is supported by improving domestic fundamentals.

Supported by rising commodity prices, Indonesia’s trade balance posted a 21-month surplus in a row, and helped Indonesia’s current account post a surplus of US$ 1.4 billion or 0.4% of gross domestic product (GDP) in the fourth quarter of 2021.

Throughout 2021, the current account surplus was recorded at US$ 3.3 billion (0.3% of GDP). The last time the current account recorded a surplus on an annual basis was in 2011.

This year, Bank Indonesia (BI) predicts that the current account will return to a deficit, but around 1.1% – 1.9% of GDP. This projection is lower than the average deficit in the 2012 – 2020 period of 2.3% of GDP.

BI also has large foreign exchange reserves. Last week, BI reported foreign exchange reserves of US$ 141.4 billion at the end of February, up US$ 100 million from the previous month.

In comparison, when there was a taper tantrum due to the plan to normalize the monetary policy of the United States central bank (The Fed) in 2013, Indonesia’s foreign exchange reserves were in the range of US$ 105 billion. This means that BI has more “ammunition” to stabilize the rupiah.

Unfortunately, the Russia-Ukraine war made the sentiment of market participants worse. The war also made market players “throw away” major Asian currencies, even though the rupiah was still able to strengthen last week.

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