On Thursday, September 24, 2026, Bank Indonesia Governor Destry Damayanti held a press conference with Indonesia’s Finance Minister Suahasir Nazara at the Central Bank Headquarters in Jakarta, Indonesia.
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Bank Indonesia faced growing pressure to raise interest rates on Wednesday as economists revised their forecasts after global index provider MSCI downgraded the country’s stock market from emerging market status, warning it could trigger a fall in stocks and the rupiah.
Citibank now expects a preemptive 50 basis point increase to 6.25%, abandoning its earlier request for no change. Capital Economics and Permata Bank forecast a 25 basis point (bp) hike to 6%. The central bank has kept the benchmark seven-day reverse repo rate unchanged at 5.75% since June.
MSCI announced on Friday that it was considering making Indonesia “independent” from the emerging market status it has held since 1989, causing the Jakarta Composite Index to suffer its worst two-day decline on record, but rebound by about 3% on Tuesday after authorities announced measures to improve market transparency and price discovery, including removing entrenched companies from the flagship index.
Meanwhile, the rupiah fell to 18,030 rupiah to the dollar on Tuesday, near its all-time low set in June and down about 8% since the beginning of the year.
“Failure to raise rates (Wednesday) risks disappointing investors and putting further downward pressure on currencies,” said Jason Tooby, chief emerging markets deputy economist at Capital Economics. “Wednesday’s decision to keep interest rates on hold could reignite investor concerns that Bank Indonesia is bowing to political pressure.”
Citi’s Helmi Allman said the rate hike was aimed at allowing equity outflows to spill over into bonds, encouraging domestic investors to flee capital. He expects this to be a “one-off”, followed by other support such as government foreign currency borrowing and another round of bilateral currency swaps with foreign central banks.
The central bank has already raised interest rates by a total of 100 basis points since May. Headline inflation accelerated to a three-month high of 3.28% in September, staying within the target range of 1.5% to 3.5%, while core inflation fell to 2.84%. Governor Destry Damayanti said foreign exchange reserves of $146.3 billion at the end of September were enough to stabilize the rupiah.
The health of the market is at stake
“Market confidence can deteriorate much faster than the economic fundamentals,” said Josua Pardede, chief economist at PT Bank Permata, who estimates that foreign investors have net-sold Indonesian stocks by about $5 billion this year. He added that the withdrawal of foreign stocks risks further depreciation of the rupiah, triggering a sell-off in government bonds.
The biggest risk is not simply that it loses its emerging market status, but that doubts about the health of the market permanently increase Indonesia’s cost of capital.
Josua Pardede
PT Bank Permata Chief Economist
He estimates that MSCI’s downgrade could force passive outflows of $3 billion to $5 billion, with an additional $15 billion of actively managed overseas funds subject to rerating. Pardede expects the market correction could occur in stages, from precautionary selling by the first half of 2027 to mechanical selling if MSCI confirms the move by June.
“BI can provide liquidity and reduce excessive volatility, but only credible market governance reforms can address MSCI’s fundamental concerns,” he said, calling for reliable float data, ownership disclosure and transparent engagement with international institutional investors.
“The biggest risk is not just that it loses its emerging market status, but that doubts about the health of the market result in a permanent increase in Indonesia’s cost of capital.”
