Indonesia November trade seen back in deficit while December

Reuters - Indonesia will report a set of economic data on Thursday that's expected to show easing inflation in December but a swing back to a trade deficit during October.

During 2013, high inflation and sizable trade deficits have been factors hurting the rupiah, which has been emerging Asia's weakest currency during the year.

In recent months, the pace of inflation has eased and the country's current-account deficit has narrowed, which has taken some pressure off the rupiah, but it has still been weak, falling 21 percent against the dollar in 2013.

Economists will be weighing the data due on Thursday for clues on whether Bank Indonesia might change its benchmark policy rate, now at 7.50 percent, when it holds its first policy meeting of the year on Jan. 9.

A Reuters poll of analysts showed a median projection for annual inflation in December of 8.31 percent, slightly below the 8.37 percent the country's statistics bureau reported for November. In August, annual inflation hit 8.79 percent.

Poll respondents also said November likely had a trade deficit of $70 million, compared with a surplus of $50 million a month earlier.

"We expect exports to contract in November due to weakening external demand while imports are also likely to remain weak amidst tighter policies," said Enrico Tanuwidjaja, a Singapore-based analyst for Nomura.

Traditionally, Indonesia has had trade surpluses, but it had a rare annual deficit in 2012, and this year most months have seen deficits too.

While the global outlook is improving, there's concern about the trade prospects for 2014 because of a ban on unprocessed mineral exports set to begin in January, though some exemptions may be given.

Some analysts believe there could be more interest rate hikes in the first quarter to ease worries over the large current-account deficit.

"We believe the central bank, at its next policy rate meeting on Jan. 9, would lift its benchmark rate by 25 bp to 7.75 percent in an effort to curb the persistent current-account deficit," said Arga Samudro, economist at Bahana Securities in Jakarta.

Bank Indonesia (BI) has hiked its key reference rate by a total of 175 basis points since June, an effort to restore market confidence amid fears of the country's vulnerability to capital outflows on the Fed's tapering and help the ailing rupiah.

Agus Martowardojo, the central bank governor, said last week that BI anticipates a strengthening for the rupiah in 2014.

One piece of welcome news for the central bank is that inflation is on track to end the year below its revised 2013 target of 9-9.8 percent.

But while the Reuters poll saw annual inflation easing in December, it projected the monthly pace would accelerate to 0.49 percent against 0.12 percent in November, due to rising food and clothing prices on seasonal factors.

Core inflation, which excludes volatile foods and administered prices, slightly quickened to 4.82 percent from a year ago in December.

The statistics bureau has said it is adopting 2012 as its base year for measuring inflation, effective this month. The bureau changes the index base every five years.

Analysts in Reuters poll are still using 2007 base year. However, estimation made by three analysts using 2012 base year showed insignificant differences ranging around 0-0.1 percentage points for annual inflation.