The information below has become available following the issuance of the staff report. It does not alter the thrust of the staff appraisal.
1. Recent data releases are broadly consistent with staff s view on the near-term macroeconomic outlook.
The current account deficit for 2014 was in line with expectations at about US$26 billion. It remained on a downward trend, narrowing in the last quarter of 2014 to US$6.2 billion (2.9 percent of GDP), which was largely attributable to a smaller oil import bill. The overall BOP surplus was slightly larger than expected in 2014 at US$15.2 billion, with non-portfolio capital inflows the main factor. Turning to 2015, the trade surplus rose to US$0.7 billion in January from US$0.2 billion in December, with oil and gas imports further shrinking.
Headline inflation declined further to 6.3 percent (y/y) in February 2015, benefiting from lower food and transportation prices, but core inflation stayed around 5 percent. Bank Indonesia’s latest (February) consumer survey index showed price expectations continuing to fall.
2. Parliament approved a revised 2015 budget in mid February with an overall deficit target of 1.9 percent of GDP, in keeping with the government’s initial proposal. To achieve this target and boost capital spending, the budget relies on an ambitious increase in non-oil and gas revenues, which is expected to come mainly from administrative measures. The budget also provides for a recapitalization of state-owned enterprises (0.4 percent of GDP) within the financing items.
3. Bank Indonesia (BI) cut its benchmark and deposit facility rates by 25 bps to 7.5 percent and 5.5 percent, respectively, effective February 18, while leaving its lending facility rate unchanged at 8.0 percent, citing recent improvement in inflation performance and the current account. Broad money and private credit growth slowed in December 2014, as expected, to around 12 percent and 12½ percent (y/y), respectively.
4. Financial market developments have remained broadly favorable. Since Bl’s rate cut, the 10-year bond yield has declined by about 30 basis points while the rupiah has weakened slightly against the U.S. dollar. Portfolio inflows continue to be supportive.