JAKARTA, Oct 1 (Reuters) - Indonesia's exports slumped more than expected in August while annual inflation eased in September, leading economists to expect the central bank to have room to keep benchmark interest rates at a record low all year.
Exports in August fell 24.3 percent from a year earlier, a fifth straight month of decline, while imports unexpectedly slowed to fall 8.02 percent from a year ago, leading to a trade surplus of $250 million, the statistics bureau said on Monday.
Indonesia's inflation in September eased to 4.31 percent from a year earlier, lower t han expected and versus 4.58 percent in August, the statistics bureau said.
- Aug exports drop 24.3 pct y/y (vs forecast -12.30 pct)
- Aug trade balance at $0.25 bln surplus (versus forecast for $0.08 bln deficit)
- Sept CPI at 4.31 pct y/y (vs forecast of 4.60 pct)
- Sept CPI at 0.01 pct m/m (vs forecast of 0.22 pct)
For graphics on CPI, see: COMMENTARY
ROBERT PRIOR-WANDESFORDE, ECONOMIST, CREDIT SUISSE, SINGAPORE
"The huge export contraction is no doubt largely a function of a difficult base effect, weak commodity prices and poor external demand. But the more interesting question is to what extent is the drop in imports a reflection of a weakening domestic demand in Indonesia.
"Sharp weakness in the rupiah, on the back of on-going deterioration in the external accounts, is the most likely trigger for the central bank to be (forced) to raise rates. We are looking for 125 basis points of Bank Indonesia rate hikes during 2013."
HAK BIN CHUA, ASEAN ECONOMIST, BANK OF AMERICA MERRILL LYNCH, SINGAPORE
"Bank Indonesia will likely leave the BI rate unchanged at 5.75 percent at the 11th October policy meeting. Inflation has dipped below the mid-point of the 3.5 percent - 5.5 percent inflation target range. But growth remains relatively buoyant, supported by domestic demand.
"We think BI will likely continue tightening by lifting the deposit facility rate gradually over the next few months to 4.75 percent (from the current 4 percent) by the middle of next year, but may choose not to move this month given the improvement in the trade balance."
RADHIKA RAO, ECONOMIST, FORECAST WEB, SINGAPORE
"Today's data releases should partly assuage over-heating and current account shortfall concerns. Fading festive demand has seen September core/headline CPI soften and could ease pressure on Bank Indonesia to tighten policy levers.
"In addition, import growth also lost steam in August, contracting for the first time in over 2.5 years. The sharp tumble in August exports however is worrisome and could play-up current account deficit fears, especially if the pullback in imports proves temporary and capital inflows peter out on renewed external concerns.
"The rupiah will remain on the backfoot."
ERIC SUGANDI, ECONOMIST, STANDARD CHARTERED, JAKARTA
"Inflation is very low year-to-date, we see that food prices stabilized after the Ramadan season is over and the government is not going ahead with a fuel price hike.
"We see inflation at 4.5 percent at the end of year and the Bank Indonesia rate staying at 5.75 percent because its a condusive environment. However, the FASBI rate can still be raised 25 basis points by December to hold credit growth and to lower the current account deficit.
"The rupiah is under pressure but at a stabilized level."
MARKET REACTION - The rupiah
was little changed after the data at 9,585 per U.S. dollar, having weakened 0.2 percent earlier in the day.
- Indonesia's benchmark stock index
picked up after
the data but remained in negative territory, trading down 0.65 percent by 0530 GMT.
A Reuters poll before the data showed Indonesia's exports were expected to have fallen in August for a fifth straight month, though the country's trade balance was seen narrowing because of slower growth in imports.
August exports were seen falling 12.3 percent from a year ago, deeper than a 7.27 percent drop in July, due to weak demand from China and a fall in prices for the commodities that make up 70 percent of Indonesia's shipments. The trade balance was forecast to narrow further to $80 million.
Trade imbalances in Southeast Asia's biggest economy have raised concerns among investors, pressuring the rupiah
become Asia's worst performing currency this year, with the August improvement not seen as enough to calm market sentiment.
The Reuters poll said annual inflation would be little changed in September at 4.60 percent, as prices of foodstuffs eased after the Eid al-Fitr Muslim festivities in August.
This is likely to keep inflation within Bank Indonesia's end-2012 target of 3.5-5.5 percent.
Inflation in Indonesia in August picked up slightly to 4.58 percent from a year earlier, versus 4.56 percent in July.
The mild inflation figures, coupled with the gloomy outlook of the global economy, mean Bank Indonesia is expected to keep its benchmark rate at a record low 5.75 percent for the rest of the year, economists say.
(Reporting by Andjarsari Paramaditha; Editing by Neil Chatterjee)
Keywords: INDONESIA ECONOMY/INFLATION