JAKARTA: Indonesia's exports in April surprisingly weakened, tipping the country's trade balance into its largest deficit in nine months and renewing stress on the fragile rupiah.
Recent signs of stability in the country's current-account deficit and moderating inflation had helped to revive investor confidence ahead of presidential elections in July.
Inflation picked up in May but largely met forecasts, underlining expectations that Bank Indonesia will likely leave interest rates unchanged in the near term to continue bolstering the economy as growth slows, analysts said.
The G20 economy has kept policy tight and taken steps to dampen imports to shrink the current-account deficit, which had ballooned last year and sparked capital outflows.
Indonesia's trade balance slipped to a $1.97 billion deficit in April, government data showed on Monday, after two straight months of surpluses, and confounding analysts' expectations for a $220 million surplus.
The trade deficit was larger in July last year when it was $2.3 billion.
"We had expected a sharp deterioration in Indonesia's trade balance over April but the actual deterioration was truly shocking," said ANZ's Asia chief economist, Glenn Maguire.
He said export growth remained weak due to softer prices for key commodity and manufactured exports. And firm imports may be due to a combination of lagged foreign exchange effects and foreign direct investment inflows from a build-up in capacity.
"The external position is likely to remain negatively pressured in coming months if our assessment of these dynamics proves true," Maguire said.
Others attributed imports to an increase in shopping and purchases, as Indonesians prepare for celebrations after the Ramadan fasting month.
Exports in April dropped 3.16 percent against expectations in a Reuters poll of 3.50 percent growth.
Imports eased 1.26 percent compared with expectations for a fall of 7.7 percent.
The rupiah hit its weakest in more than three months on Monday, after Indonesia's unexpectedly large trade deficit.
It fell as much as 0.9 percent to 11,775 per dollar. Gundy Cahyadi, an economist with DBS, agreed the surprise was the trade deficit and also that imports were better than expected, suggesting that some concerns about domestic demand had been a little stretched.
"By all measures, Indonesia's domestic demand remains resilient, and probably more so now that consumers and businesses have adjusted to the rupiah exchange rate."
He said the current account may continue to remain under pressure, although it still looked like the current account deficit could still come in below 3 percent of GDP this year.
Annual inflation in May picked up to 7.32 percent due to higher food costs but matched forecasts for 7.30 percent, the data showed. On a month-on-month basis, the CPI was up 0.16 percent.
Gundy expects Bank Indonesia to maintain a cautious stance.
Bank Indonesia has indicated that it will continue to adopt a tight monetary policy this year to help stabilise the rupiah and to lower the current-account deficit to under 3 percent of gross domestic product from 3.3 percent in 2013.
It has maintained its policy rate at 7.5 percent since December after increasing it by 175 basis points between June to November to support the rupiah.
Meanwhile, the export outlook may brighten in the coming months as manufacturing activity surged to a record high in May, an HSBC Markit purchasing managers' index survey showed on Monday.
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