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View all search resultsMSCI warning triggered ‘manageable’ outflow from bond market, BI reveals
Bank Indonesia has revealed that MSCI’s warning sparked immediate capital outflows from the bond market but had only a limited effect on the rupiah exchange rate.
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The gatekeeper: The logo of Bank Indonesia marks the central bank’s gate on Jl. Thamrin in Central Jakarta. The bank cut its seven-day reverse repo rate several times to help the country recover from the crisis inflicted by the COVID-19 pandemic. (The Jakarta Post/Rafaela Chandra)
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SCI’s warning about Indonesia’s stock market sparked immediate capital outflows from the bond market as well but had only a limited impact on the rupiah exchange rate, according to the central bank.
Bank Indonesia (BI) executive Erwin Gunawan Hutapea revealed in a press briefing on Friday that inflows had been “rather good” from the end of September to mid-October, until MSCI announced a possible reclassification of the Indonesian equity market on Oct. 16.
BI recorded outflows from both government bonds and BI’s short-term bonds called Bank Indonesia Rupiah Securities (SRBI).
While Erwin refused to provide the exact number of funds pulled out of the country’s bond market on the day, his presentation slide showed a total outflow of around Rp 5 trillion (US$276.5 million) from equities and bonds combined.
The Indonesia Stock Exchange (IDX) recorded a total outflow of Rp 3.4 trillion on the day MSCI made the announcement, meaning the bond market recorded an estimated Rp 1.6 trillion in outflows that day.
Erwin did not reveal how the bond market has fared since the announcement but said the outflow had been “manageable” and did not affect the rupiah exchange rate “excessively”, adding that “we can still manage it well and hopefully the shock can slowly be digested by market participants”.
MSCI on Oct. 16 shocked the country by announcing the possibility of reclassifying Indonesia into what it calls a “standalone market”, which is the bottom tier of the index compiler’s system filled with countries at war like Ukraine and Palestine alongside markets with strict capital controls like Argentina, Lebanon and Nigeria.
