Indonesia unexpectedly reported a record trade deficit while inflation accelerated further, renewing pressure on policy makers as they grapple with a slumping currency. Stocks and the rupiah fell.
The trade gap in July was $2.3 billion, the biggest on record, according to the Statistics Bureau, and exceeding all 16 estimates in a Bloomberg survey. Consumer prices rose 8.79 percent in August from a year earlier, a separate report showed. The increase was the greatest since January 2009, and compared with the 8.95 percent median in a survey.
The numbers showed the challenge for Indonesia, which joins emerging economies from Brazil to Turkey and India in taking steps to support currencies as the prospect of reduced U.S. monetary stimulus spurs a sell-off in their markets. Bank Indonesia raised its reference rate by half a percentage point at an unscheduled meeting last week, while the government said Aug. 23 it will allow more mineral exports this year and increase a luxury-goods tax to narrow the trade gap.
“The widening deficit shows how serious Indonesia’s economic condition is,” said Edwin Sebayang, head of research at PT MNC Securities in Jakarta. “This is what caused the reversal in the stock market.”
The benchmark Jakarta Composite Index of stocks fell 2.2 percent at the close, the most in Asia. The rupiah slid 0.5 percent to 10,979 per U.S. dollar as of 4:07 p.m. It fell 5.9 percent in August to be the second-worst performer among 11 widely traded Asian currencies tracked by Bloomberg.
Inflation climbed because of higher gold prices and power tariffs, the statistics bureau said. The trade deficit widened as consumption rose before the Eid-al-Fitr holiday and a lack of sufficient production meant more imports, even as exports dropped on lower global commodity prices, said Sasmito Hadi Wibowo, an official at the bureau.
The record trade deficit is unlikely to continue and the shortfall for the year should range from $6 billion to $7 billion, Trade Minister Gita Wirjawan said in Singapore today. The current-account gap will remain for many months, he said.
Today’s data was a “nasty trade shock,” and fuel-price inflation will continue to be elevated on an annual basis for a year from June, when President Susilo Bambang Yudhoyono raised tariffs for the first time since 2008 to cut subsidy costs, Robert Prior-Wandesforde, an economist at Credit Suisse Group AG in Singapore, said in a note.
The central bank forecasts inflation of about 9 percent to 9.8 percent by the end of the year, Deputy Governor Perry Warjiyo said last week.
Indonesia’s monetary authority has raised its policy rate by a total 125 basis points since early June to 7 percent. The August inflation number is “good news” and inflation will return to a normal pattern this month, Warjiyo said today.
Inflation may peak at about 10 percent to 10.5 percent in December or January, higher than Bank Indonesia’s forecast, because of rising oil prices, higher minimum wages and the weak rupiah, said Hak Bin Chua, a Singapore-based economist at Bank of America Corp. The trade deficit suggests the current-account gap will remain wide and at about 4 percent of gross domestic product or higher in the third quarter, Chua said.
Bank Indonesia may raise borrowing costs by at least another 50 basis points this year, Prior-Wandesforde said.
“Today’s releases are going to do nothing to reassure the central bank while unsettling the markets once again,” Prior-Wandesforde said. “In our view, BI still has plenty of work to do to calm things down.”
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