Indonesia's trade balance to hit USD0.2b in Feb

Hopes fade for a sharp upswing.

According to DBS, all eyes will be on Indonesia's Feb trade data once markets re-open on Tuesday. The Feb trade balance is unlikely to show a sharp upswing from the –USD 0.4bn recorded in Jan. In fact, DBS expects the trade balance to have remained in the deficit, circa USD 0.2bn, in Feb.

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Exports of raw mineral ores and manufacturing products will be under scrutiny. The export ban on mineral ores has caused a sharp drop in mineral ore exports in Jan, but this also came after the spike in Dec.

Meanwhile, part of the sharp turnaround in the trade account in 4Q13 was due to the falling rupiah. With the rupiah gaining some grounds so far this year, it remains to be seen if the improvement in manufacturing exports will come to a halt.

What is certain though is that the oil & gas balance is likely to remain a drag. The structural problems that have weighed on the current account persist. Crude oil production has been 15-20% below target in recent years and a quick reversal is unlikely in the near-term.

Expect the deficit in the oil & gas account to average about USD 2bn per quarter. BI is unlikely to alter its monetary policy stance for now. Inflation is easing but that is just half of the battle this year.

Current account deficit is still some distance away from the more sustainable 2% of GDP mark. External funding concerns remain prevalent, especially given uncertainties in global markets.