The central bank of Indonesia (Bank Indonesia) expects inflation to moderate to 4.5 percent in 2014 if the country's current account balance can be turned into a surplus. Currently, Indonesia's trade balance shows a deficit as global demand for Indonesia's commodities has reduced due to international economic turmoil, while Indonesia continues to import large quantities of oil. If the deficit can be reversed into a surplus it will curtail inflation and automatically have a positive impact on Indonesia's currency (IDR rupiah).
The above message was uttered by governor of Bank Indonesia Agus Martowardojo on Wednesday (17/07). He said that good coordination with the central government is needed to influence the country's trade balance in a positive manner.
For Indonesia a trade deficit is an unusual situation. Since 2005, the country's current account balance has shown a positive trend, with the exception of 2008 when the balance recorded a deficit. However, in the last six consecutive quarters, the balance was in deficit.
Indonesia's inflation rate is expected to increase about two percent in July as prices of subsidized fuels have been raised by the government (last month), while the fasting month (Ramadan) and Idul Fitri celebrations also bring traditional annual inflationary pressures. The central bank assumes that inflation in 2013 can go up to between 7.2 and 7.8 percent.
Inflation in Indonesia:
(annual percent change)
¹ year to date
Source: Statistics Indonesia