Bank Indonesia Under Pressure to Hike Rates Amid MSCI Downgrade Fears
Bank Indonesia is under increasing pressure to raise its benchmark interest rate on Wednesday amid concerns over a potential downgrade of Indonesia's stock market from emerging-market status by global index provider MSCI. The threat has triggered significant volatility in the rupiah and equities, with the Jakarta Composite Index experiencing one of its worst two-day sell-offs before partially recovering after authorities announced measures to improve transparency. Economists are divided on the size of a potential rate hike: Citibank now forecasts a 50-basis-point increase to 6.25%, while Capital Economics and Permata Bank expect only a smaller rise to 6%. The central bank has kept its key interest rate unchanged at 5.75% since June, but analysts warn that inaction could further erode investor confidence. The rupiah weakened close to record lows against the dollar earlier this year amid capital outflows and inflation concerns. While headline inflation rose slightly in September, core inflation eased within target ranges.
Tickers: $MSCI
Topics: Bank Indonesia Interest Rates MSCI Downgrade Risk Rupiah