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Indonesia: current account shift reduces external risks

Indonesia has seen a dramatic shift in its current account position over the past year, with recently published data showing that the country recorded its second consecutive quarterly surplus in the final quarter of last year. The surplus of 0.3% of GDP compares with a deficit of 2.8% in the same period last year. The change makes the country less vulnerable to sudden shifts in global risk appetite – a welcome development in a country like Indonesia which has faced perennial balance of payments strains and where foreign currency debt is equivalent to around one-third of GDP. A current account surplus should give the central bank the reassurance it needs to continue its easing cycle. Bank Indonesia cut its policy rate for the first time since November at its scheduled meeting last week. We have one more 25bp rate cut pencilled in for the second quarter of this year.

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