Aloysius Unditu and Arijit Ghosh – Indonesia's exports fell the most in more than 22 years in January and inflation slowed the following month, increasing scope for the central bank to reduce its benchmark interest rate this week.
Overseas shipments plunged 35.5 percent to $7.15 billion from a year earlier, the Central Statistics Bureau said in Jakarta today. Consumer prices rose 8.6 percent in February from a year earlier, the smallest increase in 11 months.
Declining exports and slowing inflation may prompt Bank Indonesia to cut borrowing costs for a fourth straight month to boost consumer demand in Southeast Asia's largest economy. President Susilo Bambang Yudhoyono said today the global recession now threatened the world with the 'collapse" of manufacturing industries.
"Global demand has fallen significantly and maybe it's deeper than what the central bank had expected," said Purbaya Yudhi Sadewa, chief economist at the Danareksa Research Institute in Jakarta. "That will create more downward pressure on the economy and means more domestic stimulus is needed. The central bank will have to cut rates at its next meeting."
Indonesia's benchmark stock index was down 1.9 percent at 2:05 p.m. in Jakarta, while the rupiah fell 1.5 percent to 12,165 against the dollar.
Bank Indonesia will meet on March 4 to decide on its policy rate. The central bank forecasts inflation will slow to the lower end of its 5 percent to 7 percent target this year, Director Made Sukada said on Feb. 28.
Slowing growth
Consumer prices rose 0.21 percent in February from a month earlier after declining 0.07 percent in January. Core inflation, excluding fuel prices, was 7.42 percent.
Indonesia's economic growth weakened to 5.2 percent in the fourth quarter, the slowest pace in more than two years, as the global recession pummeled the nation's exports. The government forecasts the pace of expansion will slow to 4.5 percent this year from 6.1 percent in 2008.
Wages in Japan, the biggest buyer of Indonesian goods, declined in January as companies cut jobs, reducing demand for products from overseas.
"The industrial production indices of Indonesia's four key trading partners continue to contract," said Helmi Arman, an economist at PT Bank Danamon Indonesia in Jakarta. The nation's trade surplus may improve as imports decline in line with exports, he added.
Imports outside trade zones fell 32 percent to $5.17 billion, according to today's statement. The trade surplus was $810 million.
Still, a depreciation of the rupiah increased costs of imported wheat, fuel and car parts. The rupiah has declined 23.7 percent in the past six months, making it the second-worst performing currency after South Korea among 10 most-traded Asian currencies outside Japan.