Indonesia Greets India Rate Cut as Good for Exports


MARCH 08, 2015

Jakarta. Indonesian commodity producers and economists have hailed the Indian central bank’s rate cut as good for boosting exports from Southeast Asia’s biggest economy to one of its major markets.

“In the past year, India has been the biggest importer of coal from Indonesia, after China’s imports slowed down,” said Supriatna Suhala, executive director of the Indonesian coal miners’ association, or APBI, adding that India’s lower interest rate was “good news” for Indonesia.

Indonesia exported 90 million metric tons of coal to India last year a year, or 27 percent of the total 330 million tons of the fossil fuel that it exported. Exports to China amounted to 80 million tons.

“I predict the export figure could be bigger this year because our coal production could increase up to 8 percent,” Supriatna said.

“India also wants to raise its coal royalty rates. If our royalties don’t increase, our coal could be very competitive there.”

The Reserve Bank of India lowered its key interest rate by 25 basis points to 7.5 percent last Wednesday, the second time it has cut the rate this year. It followed that up two days later by easing requirements for home loans.

The lower rate environment puts India in position to stimulate its economy, which translates, among other things, into a boost in imports of commodities from Indonesia, says Ryan Kiryanto, the chief economist at state-controlled Bank Negara Indonesia.

“Market players have responded well to the structural reform in India. Even the direct investments are rushing into india,” he said, adding that this should, in turn, drive up demand for commodities from Indonesia.

That includes palm oil, of which Indonesia is the world’s biggest producer and India its biggest export market.

Shipments of the palm oil and palm kernels to India fell 17 percent in 2014 to 5.1 million metric tons, according to the Indonesian association of palm oil producers, or Gapki.

“There’s an indication that India will boost its vegetable oil imports [...] but we have to compete with other countries as well such as Malaysia,” said Fadhil Hasan, the Gapki executive director.

“[India] will search for the most affordable option. The indication [for increased exports] is there, but we also need to boost our competitiveness.” With the Chinese economy slowing, India remains a strong bet for continued robust growth for Indonesian exports, says Eric Alexander Sugandi, an economist at Standard Chartered Bank.

“Demand [for Indonesian commodities] comes mostly from China and India. So stronger demand [in India] will also help us,” he said.

Indonesia’s total non-oil-and-gas exports to India in 2014 was worth $12.22 billion, down 6 percent from the year before.