Improvement in the economy
Indonesia has already seen a certain measure of improvement in the economy in the past quarters. While the country experienced a painful situation due to the restrained mobility from the pandemic, which led to a semi-lockdown in Q2 2020, Indonesia has continued to improve, slashing the negative growth rates quarter after quarter.
In Q4 2020, the Indonesian economy still suffered negative growth compared with the same period in 2019. However, the negative growth was smaller than the previous quarters, at -2.19% compared with -3.49% in Q3, and with -5.47% in Q2. Given that in Q1 2020 Indonesian economy posted positive growth of 2.70%, economic growth for the whole year stood at -2.07%. While it was still a painful time, the trajectory of economic growth has led the prospects for the economy in 2021 into positive territory.
The improvement of the economy resulted in a surplus of the current account for that quarter. If in Q3 of 2020, Indonesia's current account had already produced a surplus of $1,008 million or 0.38% of GDP, the current account posted another surplus in Q4 2020 of $795 million or 0.29% of GDP. Since the financial and capital account in the balance of payments in Q4 2020 recorded a small deficit, the overall balance of payments reported a deficit of around $156 million, which led the foreign exchange reserves of the Central Bank to a level of $135,897 million in December 2020. In January 2021, the foreign exchange reserves of Bank Indonesia increased to $138,005 million.
The Central Board of Statistics also released the balance of trade data for January 2021. Exports declined by 7.48% M/M to reach $15,300.7 million in January 2021, while imports also declined, by 7.59%, to $13,342.2 million. This resulted in a large trade surplus of $1,958.5 million. If the trade surplus persists in the following months, there may be a chance that the current account surplus in Q4 of 2020 may be repeated in the first quarter of 2021.
The Central Board of Statistics also released the inflation report, which showed mild inflation for January 2021 at 0.26%. With that performance, Y/Y inflation stood at 1.56%, a level below the target inflation corridor of the Central Bank. The Central Bank is also charged to stimulate the economy to reverse the negative momentum from the coronavirus on the economy. Therefore, with inflation subdued and the exchange rate and foreign exchange reserves at comfortable levels, Bank Indonesia decided to slash the benchmark rate by 25 basis points to 3.50%.
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