Indonesian Rupiah: BI on hold as MSCI risk weighs – BBH

Elias Haddad at Brown Brothers Harriman reports that Bank Indonesia left its policy rate unchanged at 5.75% for a fourth meeting, even as IDR weakened slightly following MSCI’s downgrade consultation. BI expects the current account deficit to widen by 2026, increasing external funding needs, though ample FX reserves are seen as cushioning further Indonesian Rupiah weakness.

Rupiah pressured by external risks

"IDR weakened slightly. Bank Indonesia (BI) kept rates on hold at 5.75% for a fourth straight meeting. Markets were split, with some expecting a hike to support the currency after MSCI’s surprise downgrade warning last week heightened the risk of capital outflow."

"BI projects Indonesia’s current account deficit (1% of GDP in Q2) to widen to be between 1.6% and 2.4% of GDP in 2026. That raises external funding needs just as MSCI downgrade risks threaten capital outflows, keeping IDR under downside pressure."

"Still, BI’s ample FX reserves provide scope to cushion IDR weakness, particularly against a relatively modest spot turnover of around $7bn a day. BI FX reserves totaled $125bn in September (8.4% of GDP)."

"As a background, MSCI announced the launch of a consultation on a proposal to reclassify Indonesia’s stock index from Emerging Market to Standalone Market status, bypassing Frontier Market classification. MSCI will announce its final decision by the end of June 2027."