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 investor sell-offs. U

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 investor 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.