MSCI warning triggered ‘manageable’ outflow from bond market, BI reveals

Bank Indonesia has disclosed that MSCI's warning led to capital outflows from the bond market, although the impact on the Indonesian rupiah exchange rate was limited, according to a central bank executive. On October 16, MSCI announced the potential reclassification of Indonesia's equity market, placing it in the lowest tier of the index provider's system, which includes countries in conflict or with strict capital controls.

This revelation triggered immediate outflows from both government and short-term government bonds, collectively amounting to around Rp 5 trillion ($276.5 million). The Indonesia Stock Exchange recorded a total outflow of approximately Rp 3.4 trillion on the day of the MSCI announcement, equating to an estimated Rp 1.6 trillion in outflows from the bond market alone.

While Erwin Gunawan Hutapea, a BI executive, did not disclose the exact number of funds pulled from the bond market on the specific day, he stated that the outflow had been manageable and had not excessively affected the rupiah exchange rate. He emphasized that the market could manage the shock and hoped market participants would gradually cope with the situation.