JAKARTA, Aug 1:
Indonesia’s June exports saw their biggest drop in nearly three years on softer Chinese demand, causing the trade deficit to widen and likely adding to investor worries about the rupiah.
Bank Indonesia is expected to leave its policy rate unchanged for now as inflation remains within target and as it focuses on keeping the rupiah stable, analysts said.
Indonesia also reported on Wednesday a slight increase in inflation last month due to a jump in food prices during the Islamic fasting month.
While foreign funds have returned to buying Indonesian bonds and stocks, the rupiah remains weak despite central bank moves to prop it up. It fell 0.2 percent against the U.S. Dollar on Wednesday, taking losses for the year to 4.2 percent.
‘Bank Indonesia will likely stay on hold at the August meeting, focusing on maintaining the rupiah and ensuring U.S. Dollar liquidity,’ said Chua Hak Bin, economist at Bank of America Merrill Lynch in Singapore.
‘Concerns over the rupiah remain, with the trade balance in deficit for the third consecutive month and exports contracting in the double-digits in June,’ he added.
Bank Indonesia is expected to keep its benchmark rate steady at a record low of 5.75 percent for the whole year as inflation is forecast to remain on target. The central bank is confident the trade balance will start to recover in the second half.
Exports in June slid 16.44 percent from a year earlier, more than twice as bad as expected and versus an 8.55 percent fall in May, as demand from main trading partner China eased. Exports which fell for a third straight month, last saw a bigger drop in September 2009.
The country’s new mining rules also slightly affected exports, with the 65 minerals targeted accounting for about 6.3 percent of the total non-oil and gas exports.
The statistics bureau also reported a wider trade deficit in June at $1.33 billion versus a forecast deficit of $0.58 billion in a Reuters poll conducted before the data was announced.
The central bank has lowered its growth forecast for this year to as much as 6.2 percent, from 6.5 percent previously, due to falling exports. It also cut its 2013 growth forecast to as much as 6.3 percent from 6.7 percent previously.
Inflation in July was little changed at 4.56 percent, versus 4.53 percent in June and a forecast 4.60 percent, though food prices have increased during the Islamic fasting month of Ramadan celebrated by around 200 million Indonesian Muslims.
‘Barring these temporary factors at play, there is little to suggest that inflation will become a policy constraint anytime soon,’ said Radhika Rao, economist at Forecast Web in Singapore.
‘Present pressures on the balance of payments and currency, however, limit the scope of an accommodative policy bias.’
Bank Indonesia expects inflation to stay between 3.5 and 5.5 percent by year-end and it is confident inflation will remain benign and at a low level as the government will unlikely raise fuel prices this year.
Foreign funds bought a net 10 trillion rupiah ($1.06 billion) of Indonesian government bonds in July after selling in the past two months. Their ownership stood at 29.3 percent as of July 27, up from 28.4 percent at the end of June, latest government data showed.
($1 = 9,455 rupiah)
(agencies)
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