by Anton Hendranata Chief Economist of PT Bank Danamon Indonesia, Tbk
An early sign of progress from terms of trade
· Indonesia’s monthly trade surplus has widened to USD1.1bn in February 2016, following better non-oil export and dwindling oil deficit. Although we believe that lower oil deficit figures could be seasonal in nature and has a tendency to reverse course in the following months, it is worth mentioning that the value of oil import (and thus oil balance) is half of year-ago levels.
· If we take a look at the non-commodity export, most have shown improvement stemming from past government related programs. A rejuvenated PT PAL Indonesia that received capital injection worth IDR1.5tn last year has resulted in a triple-fold jump of ship export. Other programs related to fertilizer had also bare fruit this month. Furthermore, we suspect that cumulative export growth of iron and steel articles coupled with the fall in its import were likely driven by Pertamina’s shift to expedite exploration on foreign soils.
· Growth of imported capital goods had also improved despite remaining on negative grounds. We take this as an early sign for further improvement towards the overall economy, i.e. through private investment and fiscal disbursement. Thus, retaining FY16 GDP growth forecast at 5.04% and expecting imported capital goods to continue its upward trajectory. This will widen CAD to 2.3% of GDP based on our calculation.
· In light of recent data, i.e. better external accounts and stronger Rupiah, we believe the central bank has room for another loosening. However, the move should also be accompanied by ways to enhance liquidity in the banking system so that credit streams would open up and credit profiles would be diverse. Bank Indonesia to cut policy rates by 25bps on its next MPC meeting (16-17 Mar).