25th straight month of surplus
Statistics Indonesia recorded a lower trade surplus at USD2.89 bn in May-22. The surplus was higher than our estimate at USD2.77 bn but lower than consensus at USD3.45 bn. In May-22, the export decreased by 21.3% MoM (+27% YoY) or recorded USD21.5 bn of total export. The import also decreased by 5.81% MoM (+30.7% YoY) resulting USD18.6 bn of total import. The export plummeted due to the palm oil export ban to curb the rising domestic inflation from cooking oil prices hike in May-22. Besides, the slower import was still associated with China’s feeble economy as the China government still imposes several lockdowns there.
Double-edged sword of protectionism
The palm oil export band was responsible for the plummeting export in May-22 as it made up around 12% of Indonesia’s total export after all this time. At last, the government has lifted its three-week-old export ban from May, 23rd 2022 following the rising domestic and international protest and also the threat to export earnings. Banning one of the most important commodities in the world export sends inflationary wave for many countries. At the end of the day, it is about the national interest. However, it failed to meet the desired effect as the government mentioned that it would lift the ban when the bulk cooking oil price reached Rp14,000/liter. Eventually, the cooking oil prices have cooled down slightly by 0.6% MoM in average where the cheapest one is at Rp18,100/liter currently.
Commodity prices hike remains
Based on sector, all of sectors increased in yearly basis which mining led the way by growing at 114.2% YoY. From the selected non-OG sector, the biggest jump came from Nickel (HS 75) at 65.4% MoM to US591.1 mn. The biggest contributor (17.5% of total export) came from Mineral Fuel (HS 27) where it decreased by 7.93% MoM to USD4.86 bn. The second biggest contributor to export was Animal/Vegetable Fat and Oil (10.8% of total export, down from 12%) where the biggest part of it was CPO where it plunged by 87.7% MoM to USD284.6 mn.
Expansive domestic manufacturer
IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) posted a lower figure from 51.9 in Apr-22 to 50.8 in May-22 or slipping to nine-month low. The index still moved above the 50-threshold for 9th straight month, signifying the expansion. Manufacturing production fell for the first time in 9 months due to the supply constraints. Thus, all of imported goods based on the usage decreased on monthly and but still increased on yearly basis: consumption goods (-10.8% MoM), raw material/ intermediary goods (-5.62% MoM) and capital goods (-3.62% MoM). From the selected non-OG sector, the biggest contributor (15.2% of total import) came from Machinery (HS 84) where it decreased by 2.90% MoM (+22.1% YoY) to USD2.18 bn. From the highest growth, it was Meat (HS 02) at 88.5% MoM (93.6% YoY) to USD141.1 mn. This is interesting as the rising Foot and Mouth Disease on cows becomes new concern lately. We are eyeing on the disease update as it also gives inflationary pressures.
Unchanged policy rate
Even though it plunged from the previous all-time high trade surplus, the surplus in May-22 still serves as the cushion to current account deficit. However, the palm oil export ban was also responsible for the Rupiah volatility as it weakened the trade surplus as a support of currency. We may witness the trade surplus persists in 3Q22 as the export ban has been lifted and the rising of Covid-19 cases get the global attention once again, leading to mobility restrictions reimposed. However, amid the trade surplus, we see that Bank Indonesia (BI) will hold the BI-7DRRR at 3.5% in the next BoG Meeting in June, 22nd – 23rd2022 since we see BI wants to wait for the higher reserve requirement ratio and other monetary policies to take effect after they are just enacted from previous month. We expect the first rate hike will be in 2H22.