Jakarta. Indonesia’s current account deficit narrowed in the first quarter from the previous one, helped by a better trade performance, the central bank said on Friday.
The deficit for January-March was 1.8 percent of gross domestic product (GDP) or $3.8 billion, smaller than the 2.6 percent gap in the prior three months and a 1.92 percent in the first quarter of 2014.
A large current account deficit has been one of Indonesia’s economic problems and at times has pressured the rupiah, which in 2015 has been emerging Asia’s weakest currency, depreciating 5.3 percent against the dollar.
Gareth Leather of Capital Economics in London said the smaller deficit is encouraging and “should make Indonesia less vulnerable when the Fed comes to hike “.
However, he added that quarterly data are “volatile, and the deficit could pick up again in Q2 as the government’s infrastructure drive, which will push up imports, gets under way.”
Leather said Bank Indonesia (BI) “will want to see more evidence that the improvement is sustained for more than just one quarter. We expect rates to remain on hold.”
On Tuesday, BI will hold a policy meeting. Nearly all analysts expect it to hold the benchmark rate at 7.50 percent.
BI’s announcement on the current account deficit came hours after the statistics bureau said April produced a fifth straight monthly trade surplus, of $454 million.
Good news undercut
But that good news was undercut by how the surplus stemmed from tumbling imports, which reflect weak domestic demand and falling growth. Imports plunged 22 percent from a year earlier while exports declined 8.5 percent.
“The non-oil and gas trade balance was still under pressure from weak exports, hit by low prices of primary commodities,” Endy Dwi Tjahjono, director at BI’s statistics department, said.
BI on Friday maintained its outlook for a 2015 current account deficit of around 3 percent, compared with 2.86 percent for 2014.
Tjahjono said the deficit will widen in the second quarter, following a historical pattern, but should be smaller than the 3.92 percent in April-June 2014, before shrinking in the third and fourth quarters.
The current account is the broadest measure of a country’s foreign trade of both goods and services. It is a part of the balance of payments, which summarize an economy’s transaction with the rest of the world.
Indonesia had a $1.3 billion surplus in its balance of payments in January-March, smaller than $2.4 billion the previous quarter.