Bank Indonesia Pressured to Hike Rates After MSCI Warning — SkimNews
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- Bank Indonesia is under mounting pressure to raise its benchmark rate on Wednesday amid market turmoil triggered by MSCI's warning of a potential downgrade from emerging-market status
- MSCI warned it may move Indonesia to 'standalone' status from its current emerging-market classification, leading to the Jakarta Composite Index’s worst two-day selloff on record
- Citibank now expects a 50 basis-point rate hike to 6.25%, reversing its prior forecast of no change, as markets demand stronger monetary action
- Capital Economics and Permata Bank expect a 25 basis-point increase to 6%, citing risks of currency weakness and investor confidence erosion if rates are held
- Rupiah weakened to 18,030 per dollar, near June's record low, having fallen about 8% this year amid capital outflows and foreign equity sell-offs
- Josua Pardede, chief economist at PT Bank Permata, warned that doubts about market integrity could permanently raise Indonesia’s cost of capital, beyond the immediate impact of an MSCI downgrade
Why it matters: A rate hold risks accelerating rupiah depreciation and capital flight, as foreign investors have already net sold $5 billion in Indonesian stocks this year. The central bank must balance inflation control and currency stability against political pressure, with up to $5 billion in passive outflows possible if MSCI downgrades Indonesia.
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