BI holds rate as MSCI risk hits rupiah, stocks

Bank Indonesia left its benchmark interest rate unchanged at 5.75% at its October Board of Governors Meeting, opting to maintain its key policy rate amid renewed financial market pressures. At the same time, the central bank raised its deposit facility or overnight deposit rate to 5% and kept the lending facility rate at 6.50%, aiming to preserve the appeal of rupiah-denominated assets and support currency stability.

Alongside interest rate settings, Bank Indonesia announced a gradual cut in the reserve requirement ratio for banks to 7% from 9% to encourage lending. The central bank also strengthened hedging incentives via the Domestic Non-Deliverable Forward instrument, increasing the discount on hedging costs for six-month tenors to 40% and for 12-month tenors to 45%.

Indonesian equities initially fell ahead of the policy decision, with the Jakarta Composite Index down about 0.8%, but later trimmed losses to trade near its previous close of 5,278.888 points after the announcement that rates would be held and reserve requirements eased. On the following day, the index rose 1.12% to close at 5,387, gaining 59 points as investors assessed Bank Indonesia’s stance together with President Prabowo Subianto’s comments on the country’s potential reclassification by MSCI.

The rupiah slipped back below the key 18,000 per US dollar level, retaining its position as the worst-performing Asian currency this year with a 7.4% decline. Analysts had been nearly evenly split in a poll held from October 13 to 19 over whether Bank Indonesia would hold or raise rates, underscoring the policy dilemma between supporting the currency and sustaining growth.

MSCI has warned it could downgrade Indonesia’s stock market classification to standalone status from emerging market, a move that could lead to additional selling by investors tracking global indexes. MUFG noted that MSCI’s latest proposal adds further risks for the rupiah at a time of elevated US Treasury yields and ongoing external pressures.

Foreign investors have continued to withdraw funds from Indonesia’s stock market, with net selling reaching IDR 92.09 trillion as of October 21, 2026. This amount is more than double the foreign net selling recorded over the whole of 2025, highlighting the scale of portfolio outflows weighing on local assets and the currency.

MUFG expects pressure on the rupiah to persist despite Bank Indonesia’s recent decisions, maintaining forecasts for the currency at IDR 18,350 per US dollar by the end of 2026 and IDR 18,500 in the first quarter of 2027. The bank sees external conditions and portfolio outflows as continuing to cloud the outlook for the currency.

Bank Indonesia has indicated a preference to support rupiah stability through a broader policy toolkit, including foreign exchange intervention, hedging facilities and adjusted reserve requirements, rather than further benchmark rate increases for now. These measures are intended to balance currency stabilization with the need to sustain lending and economic growth while markets monitor the outcome of MSCI’s classification review.