Citi Research Economics : Indonesia Macro Flash May Trade Balance Improved but Remains in Deficit | Outlook Data
(Insider Stories) - Indonesia’s combined April and May trade deficit level is a substantial deterioration despite a larger increase in exports in May than in imports, Citigroup notes. The following is an extract from the report.
May registered a trade deficit of US$0.6bn, roughly in line with consensus expectations. Compared to the previous month, exports increased by a higher extent than the increase in imports. However the combined trade deficits in Apr-May, $2.3bn, is a substantial deterioration vs. 1Q and may have been close to a record high nominal level if airplane imports were also excluded from pre-2013 data.
Non-oil and gas (NOG) trade balance in deficit for two months in a row - The negative trade balance in the past two months was actually not driven by an adverse swing in the oil trade deficit, but was due to a deterioration in the non-oil trade deficit. Imports of materials such as metals, chemicals, plastics, have been on a rising trend whereas exports have generally been dragged by weak commodity prices.
We had expected the relative strength in imports to have been due to a pre-Ramadan and pre-fuel price hike effect - If so, the trade balance may improve in coming months as this effect dissipates, and also as fuel imports may start to weaken in July following the average 33pct fuel price hike in June. Up to now, we maintain our FY13 current account deficit forecast of 2.4pct GDP.
Yet the worsening NOG trade deficit also came amid an appreciation of the IDR on a trade-weighted basis in the Jan-Apr period - This again highlights the need to signal adjust monetary policy from the external balance perspective, especially as the outlook on portfolio inflows have become less clear following the anticipated stimulus withdrawal in the US. We expect BI will tighten monetary policy by raising the FasBI/BI rates to 4.75/6.50pct; i.e. by increments of 2x25bps in July and August. We also expect possible additional policy tightening from macroprudential regulations e.g. tighter policies to curb property lending.
