Annual exodus
The month of June was full of interesting economic activity. In the first half of the month, the majority of Indonesians were finishing their fasting month. The peak was the big holidays, similar to the Christmas holidays in western countries. This year, the holidays lasted for around 10 days, which basically reduced or stopped business activity except for those who served the millions of people enjoying the “homecoming” season. This month created anomalies in the statistics, including the release of the trade balance report, which suffered a delay of more than a week.
During the first half of the month, the banking system worked hard to accumulate trillions of rupiah in real cash for the preparation of the holidays. During the big holidays, many people left the cities for their rural hometowns to reunite with their parents and families, and mostly spent their money in their hometown. For the banking system, the cash disbursed in the cities prior to the holidays will return to the banking system, but through branches outside Jakarta and outside the big cities. This ritual takes place every year, so people have learned the pattern.
One of the anomalies produced by the holidays is in the balance of trade statistics. One or two months prior to the holidays, imports peak, while exports remain more or less the same, so the outcome produces a large deficit. This will return to normalcy after the holidays, so we expect the balance of trade to stabilize from the month of July on.
During the exodus from the big cities, more than 20 million people traveled, almost all at the same time, which required skillful traffic management. This year, most of the Trans Java toll road was nearly complete, which helped the flow of the exodus significantly. This was a good thing for the current president, who faces re-election next year: the success of the exodus gave him a big advantage. In a recent survey, people registered satisfaction with the current president’s performance.
On the external front, the Central Board of Statistics reported an interesting report on the trade balance for May 2018. Exports for the month increased considerably, while imports, as earlier indicated, also increased considerably. This created another deficit, although slightly lower than in the previous month. Exports reached $16,121.2 million, considerably higher than the figure for the previous month, of $14,537.2 million, an increase of 10.9%. Compared with the same period of the previous year, total exports increased by 12.47%. Meanwhile, imports in May also increased considerably, by 9.17% from the previous month, to reach $17,644.8 million. Compared with the same period of 2017, imports grew by 28.12%. This resulted in a trade deficit of $1,523.6 million, slightly lower than the deficit of $1,625.1 million in April 2018.
The Central Board of Statistics also released the inflation report, which showed relatively mild inflation for the month of May at 0.21%. With that performance, year-over-year inflation stood at 3.23%, a level at the lower part of the target corridor of the Central Bank. After the Central Bank raised the benchmark interest rate by 50 basis points in May 2018, the U.S. Federal Reserve also raised the Fed Funds rate by 25 basis points. This wiped out the benefit of increasing the interest rate by Bank Indonesia. Therefore, at its meeting in June 2018, Bank Indonesia raised the interest rate further, by 50 basis points to 5.25%, and at the same time somewhat relaxed the regulations of the loan-to-value ratio.
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