Indonesia in a bid to boost confidence

The rupiah has gained by more than 5% this week. This came after the string of policy announcements last week as well as the third policy package revealed on Wednesday. However, bulk of this recovery was driven by the relief rally in emerging markets. Markets have pushed expectations of a Fed rate lift-off to early-2016 and this, instead of the policy packages, explains most of the rupiah rally. 

Not to say that the policy packages do not have an impact in the markets at all. As far as monetary policy is concerned, it is clear that Bank Indonesia (BI) is doing all it can to prevent excessive weakening of the rupiah. Various BI officials continue to stress that the fundamental value of the rupiah is below 14,000 against the US dollar. Going by the USD 3.6bn drop in foreign reserves in August (current level is lowest since Jan-14), the central bank has also been active selling dollars in the market. 

Meanwhile, the government shifts its focus to shorter-term boost for industries and consumers. Cuts were made to prices of fuel, gas and electricity this week. The biggest adjustment was on electricity prices and the government also offers 30% lower electricity tariffs for industries operating between 11pm and 8am. In addition, companies vulnerable to layoffs are allowed to pay up to 40% of the electricity bill in a one-year instalment. Unlike the previous two packages that were mostly on easing regulations, this week's package seeks to provide immediate lift to the economy. 

Stronger investment growth into 2016 will be definitely a big boost to GDP growth. For the government, offering the carrots is the easy part. The actual response from the private sector will be interesting to monitor. Stay tuned.