EM ASIA CREDIT: MNI EM Issuance Update - Asia

August headline and core inflation printed below the mid-point of Bank Indonesia’s (BI) 1.5-3.5% band. UOB warns that price pressures could “accelerate due to continued increases in gold prices and demand, rising food prices, and higher demand for non-subsidized fuel amid supply constraints”. There is also an inflationary risk from US tariffs. It is forecasting Indonesian inflation to average 2.2% in 2025 picking up to 2.5% in 2026.

• UOB notes that “Indonesia’s inflation held steady at 2.31% y/y in August, supported by rising food prices—especially rice, eggs, and cooking oil. Volatile food inflation reached 4.47% y/y, outpacing core and administered components.”
• “Inflation declined -0.8% m/m, led by lower airfares and communication equipment prices. Energy deflation also contributed, following non-subsidized fuel price adjustments. The Personal Care & Other Services category surged 8.66% y/y due to rising gold prices.”
• “Transportation costs contributed to the monthly decline, particularly airfares, which were discounted during Indonesia’s Independence Day celebrations.”
• “On the energy front, deflation was observed due to adjustments in non-subsidized fuel prices.”

While Q2 recorded its ninth consecutive quarterly current account deficit, it narrowed from Q1 driven by the primary income deficit. Q2 printed at -$13.7bn after $14.1bn with primary income at -$16.8bn down from Q1’s -$18bn but the goods and services surplus was down $1.2bn at $3.1bn, the lowest in 7 years. Net exports contributed 0.1pp to Q2 growth, as expected.

Australia current account A$bn

• Given that the balance of payments data is nominal, the 4.5% q/q fall in merchandise export prices pressured the trade surplus. The goods surplus fell $1bn to $12.7bn in Q2 while services deficit rose $0.2bn to $9.6bn.
• The terms of trade fell 1.1% q/q & 2.4% y/y due to lower prices for exported coal and iron ore.
• Goods exports fell 0.9% q/q to be up 0.4% y/y driven by a 1.5% q/q decline in non-rural goods. Services exports rose 3.6% q/q & 7.9% y/y, the third consecutive quarterly increase, due to increased visits from New Zealanders.
• Merchandise imports fell 0.2% q/q in Q2 driven by a 1.2% q/q decline in capex and a 6.5% q/q in intermediate goods, as imported petroleum prices fell 11.5% in the quarter. Consumer goods imports rose 3.9% q/q & 3.8% y/y, possibly signalling some recovery in spending. Services imports increased 3.4% q/q to be up 7.8% y/y driven by overseas travel.

Australia terms of trade 

Source: MNI - Market News/ABS

The expected U.S. Federal Reserve rate cut in September and potential positive outcome in China-U.S. trade talks could drive further appreciation of the yuan this year, on top of capital inflows amid the A-share rally, Yicai.com reported citing analysts. The offshore yuan is close to breaking below 7.1 against the U.S. dollar, which may trigger increased foreign exchange settlement by exporters. In July, the proportion of forex settlement by exporters surged from 46.1% to 54.9%, reaching a new high since September 2024, indicating increasing willingness to sell dollars, the newspaper said.