* Jan trade deficit $440 mln vs $400 mln surplus in Reuters
* Exports fall 5.8 pct y/y due to ore ban, seasonal factors
* Feb inflation eases to 7.75 pct y/y from 8.22 pct in Jan
(Adds comments, updates markets)
By Adriana Nina Kusuma and Rieka Rahadiana
JAKARTA, March 3 Indonesia's trade balance
tipped into deficit in January as a mineral ore ban hit exports,
rekindling concerns over its large current-account deficit just
when it has started to narrow.
The trade shortfall, after three consecutive months of
surpluses, could renew pressure on the rupiah but analysts do
not see it yet as a threat to the central bank's goal of keeping
the current account deficit below 3 percent this year.
Indonesia's ability to withstand the battering in emerging
markets earlier this year also suggests the central bank can
keep interest rates unchanged at its policy meeting next
Thursday. Moderating inflation and a narrowing in the
current-account deficit favour no change, most economists say.
But one economist said Bank Indonesia may have to tighten
monetary policy, which has been its primary tool in narrowing
the current-account shortfall, by cooling economic growth in
Southeast Asia's largest economy and, with it, imports.
Indonesia is still vulnerable to capital outflows because of
investor anxiety over the deficit, but so far, the rupiah is
Asia's best performer this year when it was its worst last year.
"The market has been well aware of this issue for a number
of months, so it should not be a surprise ... We continue to
expect the policy rate to remain on hold," said economist Daniel
Wilson at ANZ.
The government acknowledged the introduction of a ban on
shipments of mineral ore from Jan. 12 was partly to blame for
the drop in exports.
"The reversion to a trade deficit could weigh on the rupiah
and markets. The ore export ban has undone the improvements to
the current-account deficit from tighter monetary policy and
weaker rupiah," said Hak Bin Chua, an economist at BofA Merrill
Lynch Global Research.
The country produced a deficit after posting a $1.52 billion
surplus the previous month, its largest in two years. A Reuters
poll of analysts had projected a surplus of $400 million for
Exports in January fell a worse-than-expected 5.79 percent
from a year earlier, as miners rushed their shipments last year
in anticipation of higher export taxes after a mineral export
ban came into effect on Jan. 12.
Data from Bank Indonesia showed a jump in exports of nickel
and bauxite between July and December.
According to the statistics bureau, shipments of ores led
the decline as it fell sharply by 70.1 percent on a monthly
basis in January and was down 34.8 percent from a year ago.
Exports of palm oil also fell 26 percent on an annual basis
due to higher demand, as the government required more biofuel
use in the domestic market.
Imports also fell, which helped to limit the extent of the
trade deficit, but demand for refined oil continued to be
relatively high. Overall in January, imports fell 3.46 percent
compared with a 0.79 percent drop the previous month.
The rupiah pared earlier gains after the unexpected
trade deficit. By 0815 GMT, it was trading at 11,570 to the U.S.
dollar, compared with the previous close of 11,604.
On the bright side, Indonesia reported that February annual
inflation eased on declining food prices to 7.75 percent from
8.22 percent in January. And core inflation only ticked up
slightly, lifted by prices of gold and processed food.
Economists polled had expected January exports to grow 2.8
percent from a year earlier and imports to fall 1.20 percent.
Struggling with surging imports to meet domestic demand and
weak structural reform, the current-account deficit in the G20
economy hit a record 4.4 percent of GDP in the second quarter
last year but has since narrowed sharply.
"All in all, it is too bad that the raw minerals export ban
shot Indonesia in the foot right when it starts to make its way
out of the woods - making the path forward that much more wobbly
- but at least the economy is now heading in the right
direction," said Wellian Wiranto, economist at OCBC.
In the near term, the pressure will be on the first quarter
where the trade balance is expected to be in deficit because of
the ore export ban and lower coal prices.
"In total, the current-account deficit could be around $6-7
billion in Q1. But the full year will improve to below 3 percent
of GDP," said Rangga Cipta, economist at Samuel Sekuritas.
Bank Indonesia at last month's policy meeting said it would
maintain tight monetary policy and remain watchful over
The central bank has raised its policy rate by 175 basis
points since last June to keep the economy from overheating and
raise market confidence after a sharp sell-off in the rupiah.
(Additional reporting by Nilufar Rizki and Andjarsari
Paramaditha; Editing by Jonathan Thatcher and Jacqueline Wong)