Bank Indonesia likely to remain on hold; instead focus on addressing liquidity situation, says OCBC Bank

Bank Indonesia (BI) is expected to remain on hold at its monetary policy meeting, scheduled to be held on December 20 and instead focus on addressing the liquidity situation, according to the latest research report from OCBC Bank.

Indonesia’s trade balance widened for the month of November as the deficit widened to US$2.1bn (October USD1.8 billion). Even as import growth slowed to 11.7 percent y/y (October 23.7 percent y/y), the exports data showed a decline of 3.3 percent y/y (October 3.6 percent y/y). The trade deficit in effect is the widest it has been since July 2013 when it was at USD2.3 billion.

This was also the first time since July 2017 that there is a decline in exports percentage wise. The exports decline was mainly driven by a decline in non-oil and gas exports which saw a reduction of about 4.1 percent y/y.

The decline in the non-oil and gas exports itself was driven by quite a large decline in the manufacturing exports at 6.5 percent y/y amid escalating trade tensions between the US and China.

On the imports side, things looked much better as the slow-down in growth was driven by either declines or slower expansion for all the categories. In particular, the capital goods imports saw a decline at 2.1 percent y/y possibly attributable to the government’s measures to limit imports in this area.

"At the moment, we believe the central bank would take a break first to focus on maintaining adequate liquidity in the lending market as the loan to deposit ratio for both commercial and state banks hit around 94 percent in September. The trade data results were also a little mixed as there were improvements on the imports side whilst the exports side lagged. At this point, we are looking at the possibility of two rate hikes in 2019," the report commented.