Pressure mounts on Bank Indonesia to raise rates after MSCI threatened to downgrade the country’s stock market, triggering a sell-off in stocks and the rupiah.
01Summary
- 01Citibank now expects a 50 basis-point rate hike to 6.25%, while Capital Economics and Permata Bank forecast a 25 basis-point increase to 6%.
- 02MSCI said Friday it is considering moving Indonesia to standalone status from emerging market, triggering the Jakarta Composite Index’s worst two-day sell-off on record.
- 03The rupiah weakened to 18,030 per dollar on Tuesday, near its June record low, falling about 8% this year.
- 04Foreign investors have net sold about $5 billion of Indonesian stocks this year, and an MSCI downgrade could force $3 billion to $5 billion of passive outflows.
- 05Headline inflation rose to a three-month high of 3.28% in September, within the 1.5%-3.5% target range.
02Why it matters
A rate hike is seen as necessary to prevent further capital flight and stabilise the rupiah after the MSCI threat shook investor confidence. Failure to act could deepen the sell-off and raise Indonesia’s cost of capital.
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