By Ankur Banerjee and Stanley Widianto
JAKARTA/SINGAPORE, Feb 6 (Reuters) – Indonesian stocks and currency skidded on Friday after Moody’s lowered the country’s credit rating outlook, the latest jolt in a turbulent start to the year for Southeast Asia’s largest economy after an $80 billion rout of its equity market last week.
International investors have reacted nervously to President Prabowo Subianto’s attempt to ramp up Indonesia’s growth to 8%, with sentiment cooling on the country due to concerns over policy uncertainty, including a widening fiscal deficit and central bank independence.
The benchmark Jakarta Composite Index tumbled more nearly 3% while the rupiah dropped as much as 0.36% to 16,885 a dollar, its lowest since January 22 and down 1% for the year.
Stocks have fallen 4.7% for the week thus far, on top of last week’s 6.9% decline.
Moody’s move to cut the outlook for Indonesia’s $1.4 trillion G20 economy to negative from stable, citing reduced predictability in policymaking, came days after MSCI flagged transparency issues that triggered the market rout.
‘FUNDAMENTALS REMAIN SOLID’
On Friday, Indonesia’s financial regulator said it believed Moody’s affirmation of its Baa2 rating shows the country’s economic fundamentals remain solid and supported by its financial sector resilience and strong economic growth.
Sovereign wealth fund Danantara Indonesia, which is the main vehicle for Prabowo’s growth push, also said the rating affirmation showed confidence in long-term prospects, even as the outlook downgrade highlighted the need for institutional reform and policy consistency.
The global ratings agency cited concerns about policy effectiveness and signs of weakening governance, trends that it said could erode Indonesia’s long-established policy credibility if they persisted.
Indonesia’s chief economic minister Airlangga Hartarto late Thursday downplayed the step, saying ratings agencies and global financial markets were “yet to understand” the country’s new growth strategy.
‘WARNING SHOT’
“The Moody’s outlook downgrade is a warning shot, which could trigger other ratings agencies to follow suit, particularly if the nature of policymaking remains subject to a heightened degree of uncertainty,” said economists at OCBC in a note.
“The responses of the authorities will be watched even more closely, as credible policy choices remain a necessity to avert a credit ratings downgrade over the course of the next twelve to eighteen months.”
Indonesia’s international bonds slipped on Thursday following the Moody’s announcement. Longer dated dollar-denominated bonds eased between 0.3-0.5 cents, with many trading at their weakest level in five months, Tradeweb data showed
“The main potential impact on Indonesian markets is a higher risk premium across asset classes, with particular pressure on long-term government bonds, state-owned enterprises’ and major banks’ stocks, as well as sentiment toward the rupiah and capital flows,” said Rully Arya Wisnubroto, a market analyst at Mirae Asset Sekuritas Indonesia.
‘MITIGATE THE IMPACT’
Other global ratings agencies are yet to release reviews this year.
“Recent volatility in Indonesian stock prices have not materially affected our views on the sovereign ratings,” said Rain Yin, a sovereign analyst at S&P Global Ratings, which currently has a stable outlook on Indonesia.
“We do not expect the Indonesian economy and fiscal performance to be negatively and significantly affected if the government responds to mitigate the impact on investor confidence,” she said in an emailed statement.
All the same, Yin cautioned that fiscal deterioration could exert more downward pressure on S&P’s rating unless there are offsetting improvements elsewhere.
Rating agency Fitch did not immediately respond to a request for comment.
Vows from officials to make changes and the resignations of five top officials from the financial regulator and stock exchange have failed to stabilise the market.
Foreigners have already dumped a net of around $860 million worth of shares since last Wednesday, exchange data showed, compared with sales of $1 billion for the whole of 2025.
(Reporting by Rae Wee in Singapore, Stanley Widianto, Fransiska Nangoy in Jakarta and Karin Strohecker in LondonWriting by Gibran PeshimamEditing by Shri Navaratnam)
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