Indonesia Macro Update - Trade Balance 16 Oct 2023
KBVS MACRO UPDATE
Monday, 16 October 2023
Trade Surplus Improved, But Not Enough to Stabilize Rupiah Yet
Indonesia's Sep ’23 trade surplus showed improvement at USD3.42 bn (Cons: USD2.13 bn, KBVS: USD2.34 bn, Prev: USD3.12 bn). Moreover, the most significant decrease in imports was observed in HS23 (Food Residues and Wastes) at -39.02% mom, which predominantly used as animal feed ingredients, especially for poultry industry. Meanwhile, the decline in export values was primarily influenced by HS61 (Clothing and Accessories) at -48.45% mom, HS26 (Ores, Slag, and Ash) at -23.80% mom, and HS64 (Footwear) at -23.07% mom.
Overall, the improved trade surplus in Sep ‘23 is expected to help mitigate concerns on Rupiah depreciation, especially with capital outflows that reaching USD1.39 bn in the same month. However, it's worth noting that the trade surplus of USD7.86 bn for 3Q23 is still significantly lower compared to 3Q22 of USD14.90 bn. Furthermore, considering historical developments in the Service, Primary Income, and Secondary Income balances during the same period, we anticipate the possibility of a current account deficit in 3Q23 at around USD2.51 bn.
Despite recent development, we ruled out the possibility of BI7DRR hike, given the pro-growth objectives that are also part of BI's policy, in addition to maintaining inflationary perception from the cost-of-fund angle. To address the Rupiah depreciation, we see that the global bonds issuance should be the last resort to boost domestic USD liquidity amid IDR147.22 tn surplus in the APBN (0.70% of GDP) until Aug ‘23. Instead, a Debt Switch strategy by the government towards longer tenors’ debt from those with a one-year or shorter maturity will have a better impact on reducing Rupiah volatility. With the development of trade surplus and capital inflows in 4Q23, driven by the improved competitiveness of Indonesian traded goods and higher portfolio assets attractiveness through monetary interventions, Rupiah is expected to stabilize between of IDR15,184 - IDR15,504 per USD by the end of 2023.
Regards,
KBVS Research Team