Bank Indonesia faces a divided interest rate outlook before its Oct. 21 decision, with pressure on the rupiah and a proposed MSCI index downgrade testing its response to market turmoil.
A Reuters poll conducted Oct. 13-19 found that 15 of 29 economists expect the central bank to keep its policy rate at 5.75%. Others see a rate increase after a sharp fall in Indonesian stocks and further weakness in the currency.
CNBC reported that Citibank now expects a 50-basis-point increase, which would take the rate to 6.25%. Capital Economics and PT Bank Permata forecast a smaller move to 6%. Citibank had previously expected no change.
Reuters reported that Indonesia’s benchmark stock index lost 14.8% over Oct. 16 and 19. It recovered about 3% on Oct. 20, CNBC reported, while the rupiah traded at about 18,030 per U.S. dollar. The currency has weakened about 8% this year. The market pressure follows an earlier decline in the rupiah as MSCI reviewed Indonesia’s index status.
MSCI has proposed moving its Indonesia indexes from emerging-market to standalone status. The index provider cited investor concerns about opaque share ownership and suspected coordinated trading. It expects to proceed with reclassification unless its consultation finds clear evidence of material improvements in market governance and functioning. No final decision has been made.
PT Bank Permata chief economist Josua Pardede told CNBC that foreign stock sales could spread to Indonesian government bonds and raise the country’s cost of capital. That is a risk assessment, rather than an outcome of MSCI’s proposal. Indonesia Financial Services Authority (OJK) said it would continue market reforms and enforcement.
Bank Indonesia kept its rate at 5.75% in September, citing currency stability, inflation within its target and support for economic growth. BPS-Statistics Indonesia said annual inflation was 3.28% that month, within the central bank’s 1.5% to 3.5% target range. Core inflation was 2.84%.
Bank Indonesia is scheduled to announce its rate decision Oct. 21. MSCI’s consultation closes April 30, 2027, and the index provider expects to decide on the proposed reclassification by June 30, 2027.
