Surprise Trade Deficit in April Sends Rupiah, JCI Lower

JAKARTA (TheInsiderStories)— Surprise trade deficit in April send the rupiah and Jakarta Composite Index lower today in a trading day that was riddled with concerns over the Federal Reserve rate hike and security issues after a series of terrorist attacks.

JCI closed at 5,838.12, down by 109.04 points or 1.8 per cent, today, extending Monday’s drop of 0.16 per cent or 9.68 points.

The rupiah exchange rate on Tuesday afternoon closed weakened at Rp14,032 against the US dollar. The Jakarta Interbank Spot Dollar Rate quoted the local unit at 14,020 against the greenback, a 0.31 per cent drop versus Monday.

The plunge in JCI and rupiah are triggered by the internal and external factors. The internal factors are mostly driven by the series of terrorist attack and trade deficit.

Indonesia, the world’s largest Muslim country, was hit by series of terrorist attacks recently. Last week, terrorist inmates took control and killed five police officers in a riot at a high-security prison in Depok, West Jave. The deadly riot was said to have inspired other terror cells leading to a spate of suicide bomb attacks in East Java.

Furthermore, the trade deficit pushed JCI and rupiah weakened more. Indonesia posted a surprise US$1.63 billion trade deficit in April 2018, the largest since $1.96 billion in April 2014.

In total, the country’s import in April 2018 was up 34.86 per cent at US$16.09 billion from $11.95 billion in April 2017, while export dropped 7.19 per cent to $14.47 billion from $13.27 billion in the same period last year.

The result in April swung Indonesia’s trade balance in the first four months of 2018 to a deficit of $1.31 billion from a surplus of $5.43 billion in the same period last year.

The surprise deficit in April would put more pressure on the country’s current account, which was already in a deficit of $5.5 billion, or 2.15 percent of GDP, in the first three months this year.

In the external factor, the weakening of JCI and Indonesian currency also had been sparked by the expectation of a Federal Fund Rate increase.

The Federal Open Market Committee (FOMC) held the funds rate at a target of 1.5 percent to 1.75 percent, as expected. Markets have been watching for clues on the pace of the world’s most influential central bank will take its monetary tightening trajectory this year.

There’s an increasing likelihood that the Fed will take its monetary tightening plan faster, given that inflation at the world’s largest economy accelerating and reached the targeted 2 per cent. Industry tracker CME Group put 100% probability for a hike in the Fed Fund Rate in the FOMC next meeting on June 13.