Indonesia surprises with large trade surplus; rate cuts expected before year-end
INDONESIA recorded a surprisingly large trade surplus of US$3.46 billion in June, as imports plunged more than expected and exports remained weak, official data showed on Monday (Jul 17), adding to the case for possible rate cuts before year-end.
A Reuters poll of economists had expected a surplus of US$1.35 billion last month. Indonesia had in May recorded a surplus of around US$440 million.
However, the resource-rich country’s overall trade surplus in the first half of 2023 remained some US$5 billion below last year’s. Data from the statistics bureau showed the trade surplus in the January-to-June period stood at US$19.93 billion.
Analysts expect the surplus in merchandise trade for South-east Asia’s largest economy to narrow this year, as exports soften amid declining prices of its top commodities – including palm oil, coal and nickel – and weakening global demand.
Exports slumped 21.18 per cent on a yearly basis to US$20.61 billion in June. This was deeper than the 18.85 per cent fall expected in the Reuters poll. Shipments of coal and palm oil suffered the biggest drop.
Imports were down 18.35 per cent year on year, to US$17.15 billion, compared with the poll’s forecast of a 7.75 per cent contraction. Purchases of raw materials fell the most.
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Monday’s data suggests that the central bank has room to cut interest rates before the end of the year, said Fakhrul Fulvian, an economist with Trimegah Securities.
Trimegah predicted that Bank Indonesia (BI) will cut rates by 50 basis points this year, assuming the country runs a current account surplus equivalent to 0.3 per cent of GDP in 2023.
BI raised rates by 225 basis points between August 2022 and January 2023, to fight rising inflationary pressures.
Inflation has since cooled to within the bank’s target range, prompting calls from some economists for policy easing. But nearly two-thirds of respondents in a mid-June Reuters survey of analysts still predicted that BI will keep rates steady for the rest of the year.
BI’s next policy review is scheduled for Jul 24-25.
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