Indonesia faces MSCI downgrade risk
Indonesia is facing significant pressure following a warning from MSCI regarding the possibility of lowering its stock market classification from emerging to standalone market. This has triggered a broad sell-off in shares and the rupiah. The move comes amid efforts by Bank Indonesia to raise interest rates to curb outflows of foreign capital, with expectations that the central bank will hike rates by 25-50 basis points to reach 6.25%. The rupiah has also been impacted, falling approximately 8% this year and dropping against the dollar to near its lowest level in June. Forecasts suggest that a downgrade could lead to capital outflows worth between $3 billion and $5 billion, along with impacts on the cost of capital. Reforms in market governance are seen as essential to boost confidence and attract investments.
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