MSCI warned it may adjust Indonesia's equity market classification, stoking
market concern that Indonesia could lose emerging-market status and prompting
foreign capital outflows that are weighing on the rupiah. CITIGROUP now expects
Bank Indonesia to raise the policy rate 50bp to 6.25% at the Oct 21 meeting,
revising a prior no-change call. Economist Helmi Arman said a pre-emptive hike
could prevent equity outflows from spilling into the bond market and triggering
domestic investors sell-offs. UOB economists Lavanya Venkateswaran and Ahmad
Enver see a 25bp hike next week, versus their earlier forecast for December.
September inflation rose to 3.28% (three-month high) and is approaching the top
of the central bank's target band, leaving Bank Indonesia to weigh the trade-off
between tightening and holding rates steady.
