Indonesia Trade Surplus Jumps as Pressure on Central Bank Eases

Indonesia posted its biggest trade surplus in 20 months in November, easing pressure on the central bank to raise interest rates further to narrow a current-account gap and support the currency. The rupiah erased losses.

The trade surplus grew to $777 million in November, from a revised $24 million in October, the statistics office said today. That exceeded the median estimate of $75 million in a Bloomberg News survey of 13 economists. Inflation was little changed in December at 8.38 percent, the statistics office said, compared with a median forecast for 8.33 percent.

Record trade and current-account deficits last year led Bank Indonesia to raise its benchmark by 1.75 percentage points since early June. The country’s most aggressive rate tightening in eight years has slowed the economy and reduced imports even as it failed to shore up a currency that became Asia’s worst performer in 2013.

“The impact of BI’s tightening has started to kick in,” said David Sumual, chief economist at PT Bank Central Asia in Jakarta. “Imports of raw materials dropped significantly in November, probably due to the anticipation of slower growth ahead.”

The spot rupiah rose 0.1 percent to 12,155 per dollar as of 2:40 p.m. local time, after declining as much as 0.7 percent earlier today, according to local prices compiled by Bloomberg. The currency lost 21 percent in 2013. Rupiah one-month non-deliverable forward prices extended gains to 1.4 percent today.

Government Policy

The trade balance improved as imports fell 10.6 percent in November from a year earlier, more than the median estimate for a 7.6 percent drop. That was a result of monetary policy tightening, and government curbs on imports of some commodities, Suryamin, chairman of the statistics office, told reporters today.

“This improvement in the trade balance is likely sustainable in 2014,” Australia & New Zealand Banking Group Ltd. economists Devika Mehndiratta and Glenn Maguire wrote in a report today. “The improvement in trade balance, coupled with our expectation for inflation to head lower, tells us that BI is likely to stay on hold for the next couple of quarters.”

Policy makers next meet to decide on rates on Jan. 9 after keeping the benchmark last month at the highest level in more than four years, pausing to gauge the impact of recent policy tightening. Indonesia’s current-account gap narrowed to 3.8 percent of gross domestic product in the three months through September, after reaching a record 4.4 percent in the second quarter.

‘Comfortable Magnitude’

Today’s data suggests the current-account deficit may have narrowed to about 2.6 percent of GDP or less in the fourth quarter, a “more comfortable magnitude” that would help reduce pressure on the rupiah, said Chua Hak Bin, an economist at Bank of America Corp. in Singapore. Inflation will continue to ease and be at about 5.3 percent by end-2014, a level within Bank Indonesia’s target range, he said.

Pressure on the declining rupiah is likely to persist later this month through the first half of 2014 toward 12,500 per dollar, said Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong. He cited raw commodity export curbs that take effect this month and uncertainty over the outcome of presidential elections set for July.