Bank Indonesia (BI), the central bank of Indonesia, said that the current account deficit narrowed in January-March to the smallest in a year, helping the country to post a balance of payments surplus.
However, some economists say this would not trigger an interest rate cut by the central bank, reports Reuters.
Last year, a yawning current account deficit was one factor driving foreign investors out of Indonesian financial markets, alongside tighter US monetary policy, pushing the rupiah down to touch its weakest since the Asian financial crisis at one point.
The gap in the current account in the first quarter was $7.0 billion, equals to 2.6 per cent of gross domestic product, the BI said in a statement on Friday, compared with 3.6 per cent in the previous quarter. The fourth-quarter deficit was the widest in over four years.
There was a $2.4 billion surplus in the balance of payments of Southeast Asia’s largest economy in the first quarter, compared with $5.4 billion surplus in previous three months.
Current account, the broadest measure of a country’s foreign trade in both goods and services, is part of the balance of payments, which records all of its transactions with the rest of the world.
The central bank raised interest rates by 175 basis points between May and November to respond to the widening deficit in 2018, while the government raised import taxes and delayed big infrastructure projects to curb imports.
Some economists say the central bank may begin to loosen monetary policy if the rupiah is stable and the current account deficit is within a self-imposed limit of 3.0 per cent of GDP.
However, the rupiah is currently under pressure due to sentiments related to the US-China trade war and a cyclical increase in domestic dollar demand for servicing of offshore loans and dividend payments.
While the narrowing current account deficit is “encouraging news for investors”, the lower reading “is best interpreted with caution, as cyclically Indonesia always sees a low current account deficit in the first quarter,” said Satria Sambijantoro, an economist with Bahana Sekuritas.
He also warned the outlook for balance of payments data is clouded by trade tensions, which can hurt Indonesian exports and halt foreign inflows.
“Any negative development on the global trade front will also complicate Indonesian policymakers’ efforts to improve the external balance position - certainly limiting the room for BI to loosen the monetary policy,” he said.
Nevertheless, BI, in its statement, maintained a target of guiding the current account deficit to what it considers a safe level of 2.5 per cent of GDP for the whole of 2019.
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