Indonesian rupiah drops to record low on strong dollar, MSCI woes

The Indonesian rupiah fell to an all-time low as a stronger dollar and the risk of MSCI Inc. removing the nation’s stocks from its emerging-market indexes cast a pall over Asia’s worst-performing currency.

The rupiah weakened as much as 0.3% to 18,204 per dollar on Thursday, falling past the previous record low of 18,190 seen in early June. The Jakarta Composite Index of shares rose 0.8%, while the 10-year bond yield was steady at 7.62%

The rupiah has come under renewed pressure as the dollar strengthened overnight on expectations that the Federal Reserve would resume raising interest rates next month. At the same time, investor sentiment is fragile after MSCI in October unveiled a proposal to reclassify Indonesia as a standalone market, citing persistent investability concerns.

Goldman Sachs Group estimated about US$5.6 billion of passive outflows in such an event, as it would effectively remove the country’s stocks from MSCI’s indexes.

Ten-year bond yields climbed to a six-year high and the benchmark equity index plummeted to its lowest since 2020 earlier this month.

MSCI’s warning has compounded a host of concerns already weighing on Indonesian assets, including policy uncertainty and the risk of a sovereign rating downgrade. Persistently high oil prices are also driving up government subsidy costs and putting pressure on public finances.

Down more than 8% against the dollar this year, the rupiah is the worst performer in Asia.

Bank Indonesia has said it remains vigilant about market developments and is monitoring capital outflows following the MSCI announcement.