JAKARTA (TheInsiderStories) – Bank Indonesia (BI) reported the current account deficit (CAD) in the first quarter (1Q) of 2020 declined due to the lower imports in line with the slowing domestic economy. The CAD was US$3.9 billion or 1.4 percent of gross domestic products (GDP), far lower than the deficit in the previous quarter which reached $8.1 billion (2.8 percent of GDP).
It said, the decrease was influenced by an increase in the trade balance surplus, accompanied by a lessen in the services account deficit and primary income balance. The services account deficit also improved due to the reduction in the transportation services deficit inline with the decline in imports of goods, amid a decrease in the travel services surplus due to reduced foreign tourist arrivals to Indonesia.
In addition, BI noted an improvement in the primary income account deficit in line with domestic economic activity, which contributed to the reduction in the CAD. Capital and financial transactions in the first quarter of 2020 declined significantly, amid high uncertainty on global financial markets.
Based on the central bank data, the capital and financial transaction deficit was $2.9 billion, mainly influenced by the portfolio investment deficit, after a surplus in the previous quarter of $12.6 billion. The deficit was triggered by the large capital outflow caused by the panic of the global financial market against the COVID-19 pandemic.
With the development, the balance of payments for Indonesia in the 1Q of 2020 was a deficit of $8.5 billion. While, the position of foreign exchange reserves at the end of March 2020 was US $ 121.0 billion.
With stabilization measures and strengthening of the policy mix, BI believed foreign capital inflows were improving again in the coming months. Yesterday, the Bank decided to kept the Seven-Day Reverse Repo Rate (BI-7DRR) at 4.50 percent, the Deposit Facility rate at 3.75 percent, and the Lending Facility rate at 5.25 percent to support the the exchange rate stability amid the uncertainty of global financial markets
The governor, Perry Warjiyo said, the central bank sees room for lower interest rates as inflationary pressure is low and the need to encourage economic growth, especially in 2020. He adds, the Bank also continues to strengthen the policy mix to mitigates the risk of spreading COVID-19, maintaining financial market stability and the financial system synergizing with the government and relevant authorities in accelerating the Economic Recovery Program.
Going forward, he stated, BI will continue to pay close attention to the dynamics of the economy and global financial markets and the spread of COVID-19 and its impact on the Indonesian economy, as well as take further necessary policy steps in close coordination with the financial system stability committee to maintain macroeconomic stability and the financial system, and the economic recovery.
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