MSCI rebalance drops Indonesian stocks and rupiah hits record low against dollar

MSCI has cut the weight of Indonesian equities in its emerging-markets benchmark during its semi-annual rebalance, prompting a sharp sell-off that pushed the rupiah to a record low against the US dollar. The index provider removed several Indonesian blue chips from its tracking universe, triggering forced selling by index-tracking funds estimated at hundreds of millions of dollars.

The currency hit a fresh historical low within hours of the announcement, with Bank Indonesia intervening in the spot market to stabilise the move. Foreign investors have been shifting capital out of frontier and mid-emerging markets since the Iran war pushed the dollar and US Treasury yields higher, and Indonesia has been particularly exposed because of its commodity-import dependence.

Analysts said further pressure is likely if the rebalance triggers passive outflows of the magnitude they expect, with Indonesia's bond market also coming under strain. Government officials said they are studying additional support measures, including possible foreign-exchange swap lines, ahead of a regional finance ministers' meeting later this week.