UPDATE 1-Indonesia reverts to trade surplus in Feb on stronger commodity exports

Tue Apr 1, 2014 1:47am EDT

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* Indonesia posts Feb trade surplus, much larger than forecast

* Sharper-than-expected fall in imports, commods exports boost trade surplus

* March inflation at 7.32 percent y/y, in line with forecasts

By Adriana Nina Kusuma and Rieka Rahadiana

JAKARTA, April 1 (Reuters) - Indonesia posted an unexpectedly large trade surplus in February helped by a drop in imports, in a sign the economy is making progress in managing its current-account deficit.

Moderating inflation and more evidence a mineral export ban was not badly denting the country's exports, may also buoy investor confidence and give Bank Indonesia more leeway to leave interest rates stead, analysts said.

Southeast Asia's largest economy appears to have turned a corner this year with its troubling current-account deficit narrowing, but remains vulnerable to emerging market volatility.

The country's trade balance reverted to a $790 million surplus in February, from a $440 million deficit in January, better than analysts' expectations and even beating the central bank's bullish estimate of $760 million.

Edimon Ginting, deputy country director of the Asian Development Bank, said the government had taken steps to lower the current-account deficit by slowing consumption and boosting exports but warned that the effects would wane in coming years.

"The impact may be relatively short-lived. Longer-term strengthening of the current account requires structural reforms to achieve sustained gains in productivity and competitiveness," he said in a statement.

Exports in Febrary fell 2.96 percent from a year earlier, more than a Reuters poll of analysts predicting a drop of 1.24 percent. Imports, an Achilles heel for the G20 economy, fell by a sharper-than-expected 9.98 percent from the same period a year earlier, double expectations for a fall of 4.30 percent.

The rupiah briefly turned firmer in the one-month non-deliverable forwards against the dollar after the positive trade data. But it eased again on profit-taking. Spot rupiah also gave up some gains on caution over possible intervention by the central bank to stem the currency's gains.

NO CHANGE IN POLICY

Bank Indonesia is not expected to alter its monetary policy as it monitors improving fundamentals, analysts said.

"The trend of a positive trade balance will potentially continue throughout this year ... with an easing current-account deficit, slowing inflation and stable rupiah, tighter monetary policy is less likely," said Josua Pardede, economist at Bank Internasional Indonesia in Jakarta.

Bank Indonesia has said it has no plans to loosen monetary policy this year, as economic recovery is still under way and there is the possibility of the Federal Reserve raising rates.

But Pardede said the central bank may lift interest rates in the second half of 2015, if the Federal Reserve raises rates.

Bank Indonesia has raised its key reference rate by a massive 175 basis points, between June and November, to restore investor confidence amid worries over the country's ballooning current-account deficit.

Policy makers have been striving to dampen the country's buoyant domestic consumption to help achieve a more sustainable current-account deficit.

The official data also showed the rate of annual inflation at 7.32 percent in March, in line with market forecast.

But core inflation, which excludes administered prices and volatile foods, picked up slightly to 4.61 percent from 4.57 percent in February.

Bank Indonesia estimates that headline inflation will be around 3.5-5.5 percent this year, easing from 8.38 percent in 2013.

(Additional reporting by Nilufar Rizki and Cheong Jong Woo in SINGAPORE; Editing by Jacqueline Wong)

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