Indonesia’s current account swung to a deficit in 2023 as weakening global demand weighed on merchandise exports, bolstering expectations that Bank Indonesia (BI) will keep its key interest rate unchanged for a while longer this year.

A weaker current account balance could affect Indonesia’s rupiah and aggravate imported inflation, which are major considerations for BI’s policy rate decisions.

South-east Asia’s largest economy recorded a US$1.6 billion current account deficit last year, or 0.1 per cent of gross domestic product, compared with a surplus of 1 per cent of GDP in 2022, which had been fuelled by a global commodity boom, the central bank’s data showed on Thursday (Feb 22).

The nation’s balance of payments surplus widened US$2.3 billion to US$6.3 billion in 2023 from the previous year, mainly supported by the strong performance of the financial and capital accounts amid returning foreign inflows following subdued global financial uncertainty, BI said.

In the fourth quarter of last year, Indonesia’s current account deficit widened to US$1.3 billion, equivalent to 0.4 per cent of GDP, from the previous three months, while its balance of payments was at US$8.6 billion surplus.

The latest data meant 2022 was Indonesia’s only year of booking a current account surplus in the past 12 years.

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Economists often cite the frequent deficits as one of Indonesia’s main weaknesses as the country typically relies on portfolio inflows to plug the gap.

BI forecast a current account deficit between 0.1 per cent to 0.9 per cent of GDP this year.

“Considering the potential increase in the current account deficit this year, we see BI to have tendency of maintaining its benchmark interest rate in the short term and will only have room to reduce it in the second semester,” said Josua Pardede, chief economist at Bank Permata.

Pardede estimated that 2024‘s current account deficit would be around 0.7 per cent of GDP due to economic slowdown in its major trading partner China and weaker prices of its top export commodities, like coal and palm oil.

BI on Wednesday left its benchmark policy rate at 6.00 per cent, where it has been since October, saying that current levels were consistent with efforts to keep the rupiah stable and inflation in check.

Governor Perry Warjiyo reiterated after the policy meeting that the bank would likely have room to cut borrowing costs in the second half of the year. REUTERS