Bank Indonesia faces pressure to hike as MSCI alarm pressures rupiah
Bank Indonesia is under significant pressure to raise interest rates following a potential MSCI downgrade of the country's stock market status. Economists are revising their forecasts upward to prevent capital flight and stabilize the weakening rupiah.
Why it matters
A central bank rate hike in a major emerging market can significantly impact global capital flows and currency stability in the region.
Bank Indonesia faces mounting pressure to raise interest rates on Wednesday as economists revise their forecasts after global index provider MSCI warned it may downgrade the country's stock market from emerging-market status, setting off a selloff in stocks and the rupiah.
Citibank now expects a pre-emptive 50 basis-point increase to 6.25%, abandoning its earlier call for no change. Capital Economics and Permata Bank expect a 25 basis-point hike to 6%. The central bank has held its benchmark seven-day reverse repurchase rate at 5.75% since June.
MSCI said Friday it is considering moving Indonesia to "standalone" from the emerging-market status it has held since 1989, causing the Jakarta Composite Index to suffer the worst two-day sell-off recorded, before recovering about 3% Tuesday after authorities announced steps to improve market transparency and price discovery, including expelling tightly held companies from the flagship index.
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