The Indonesian rupiah fell to a record low against the US dollar on Thursday, November 12, reaching 18,204 per dollar. This drop marks a decline of over 8% against the dollar this year. It makes the rupiah the worst-performing currency in Asia. The previous record low of 18,190 was set in early June.
Key Details
The decline in the rupiah is due to a stronger dollar and worries about the possible removal of Indonesian stocks from MSCI's emerging-market indexes. MSCI recently announced it would remove several Indonesian companies, including Barito Pacific and Bumi Resources Minerals, from its Global Standard and Global Small Cap Indices. These changes will take effect after the market closes on November 30. This news has raised fears of broader exclusions and a possible downgrade of Indonesia's market classification. Goldman Sachs estimates that such a downgrade could lead to about $5.6 billion in passive outflows from Indonesian stocks.
Investor sentiment remains weak as the Jakarta Composite Index has dropped more than 41% this year. This makes it the world's worst-performing major stock market. The index rose 0.8% on Thursday, while the 10-year bond yield stayed steady at 7.62%. Bank Indonesia said it is closely watching market developments and capital outflows following the MSCI announcement.
The drop in the rupiah and the decline in Indonesian stocks could lead to more volatility in regional markets. This situation may particularly affect foreign investments in Southeast Asia. Investors are likely to reassess their positions in Indonesian assets due to the increased risks of market exclusion and transparency concerns.
Background
Watch for further updates from MSCI about Indonesia's market status. Also, keep an eye on any potential policy responses from the government to address investor concerns.
Related coverage: India’s Forex Reserves Drop $2.69 Billion to $717.06 Billion, KOSPI Plummets Below 5,000 Amid AI Selloff, Trading Halted.
Based on reporting by: businesstimes.com.sg