CIMB Expects Bank Indonesia To Raise Rates This Week
By Nik Nurfaqih Nik Wil
JAKARTA, Oct 19 (Bernama) -- CIMB Treasury and Market Research expects Bank Indonesia (BI) to raise its benchmark interest rate this week, bringing forward its previous December forecast amid mounting pressure on the rupiah and the risk of further capital outflows following MSCI’s proposed reclassification of Indonesia’s equity market.
In a research report, CIMB projected a 25-basis-point (bps) hike on Oct 21 as the rupiah weakened beyond 18,000 against the US dollar amid volatile financial account flows.
“Cross-asset sentiment weakness, elevated energy prices and renewed fiscal risks, compounded by tightening global monetary conditions, may warrant a further 25 bps hike in Nov, lifting our BI-Rate forecast to 6.25 per cent by end-2026,” it said in the report released on Monday.
The forecast follows a sharp sell-off on the Indonesia Stock Exchange (IDX) on Friday, which triggered a 30-minute trading halt after the Jakarta Composite Index (IHSG) plunged more than eight per cent in early trading. The index eventually closed 11.57 per cent lower at 5,185.10.
The market turmoil followed global index provider MSCI’s proposal to reclassify Indonesia from Emerging Market to Standalone Market status, raising concerns about potential foreign capital outflows.
CIMB estimated that the proposed reclassification could trigger US$2 billion to US$3 billion in passive equity outflows if implemented, with active fund selling potentially amplifying the impact. (US$1 = RM4.08)
“Following the IHSG’s 11.6 per cent decline on Oct 16, equity weakness could persist for one to three months,” it said, warning of broader risks, including delayed foreign direct investment commitments and renewed capital outflows from other domestic assets.
The research house also cautioned that weaker investor sentiment, elevated oil prices, renewed inflationary and fiscal risks, and tighter global monetary conditions were likely to constrain foreign inflows into Indonesian government bonds.
On the rupiah, CIMB said dwindling foreign exchange buffers were limiting BI’s ability to absorb external shocks through intervention alone. Adjusted net foreign exchange reserves fell by US$18.2 billion in the first half of 2026, compared with a US$11 billion decline in gross reserves, it said.
“At US$114 billion in Aug, net reserves are nearing the 2018 low of US$108 billion,” CIMB said, referring to reserves adjusted for short-term obligations and net short forward positions.
CIMB said more front-loaded monetary tightening could not be ruled out, noting that BI had previously raised rates by a cumulative 100 basis points in May and June.
-- BERNAMA