Indonesian export and import values continue to decline in March, BI likely to cut policy rate twice in 2019

Indonesian export and import values continued to fall in March, though the declines were greatly due to lower prices rather than volumes. Markedly, the trade balance saw a broader surplus for the second consecutive month, contributing to signs that the pressure on the current account deficit is easing, noted ANZ in a research report.

Values of Indonesian exports dropped 10.01 percent year-on-year in March, after an 11.16 percent fall in February. Both oil and gas as well as non-oil and gas exports recorded a slower rate of decline. It is worth noting, however, that the fall in overall export values was mainly because of lower prices rather than volumes – export volumes rose 9.25 percent year-on-year in March, up from 5.96 percent in February.

Import values also came in soft, falling 6.76 percent year-on-year in the month, following a 13.81 percent dive the month before. The rate of fall in oil and gas imports accelerated, to 31.17 percent, but this was countered by a slower rate of fall in nonoil and gas imports. The fall in overall import values was also driven by lower prices rather than volumes, which rebounded by 7.04 percent year-on-year in March after a 9.25 percent fall in February.

The trade surplus broadened in March to USD 0.54 billion, from USD 0.33 billion in February. The oil and gas deficit narrowed, while the non-oil and gas surplus broadened. For the first quarter as a whole, Indonesia’s trade balance saw a small deficit of USD 0.19 billion, which is slightly softer than the trade surplus of USD 0.31 billion seen in first quarter last year but a noticeable rebound from the USD 4.80 billion deficit seen in the fourth quarter.

The latest trade figures imply the downward pressure on the current account, which saw a deficit of 3.56 percent of GDP in the fourth quarter, is alleviating. A narrowing current account deficit, along with benign inflation, a dovish US Fed and rupiah stability, implies BI will unwind its 2018 rate hikes sooner rather than later.

“Accordingly, we now expect BI to cut its policy rate twice this year, with the first move likely as soon as next month”, added ANZ.