MSCI has officially postponed Indonesia’s market classification review until November 2026, allowing Indonesia to retain its Emerging Market (EM) status for now. While the immediate risk of a downgrade has been avoided, MSCI stopped short of providing a full clearance and emphasized that future decisions will depend on the consistent implementation and effectiveness of ongoing market reforms. The message is clear: Indonesia remains under scrutiny, and a potential frontier market reclassification consultation remains on the table if sufficient progress is not demonstrated by November. As a result, the overhang on foreign investor sentiment is likely to persist, with many investors remaining on the sidelines until clearer evidence of reform implementation emerges.

The reform review process also extends beyond MSCI. S&P Global Ratings is expected to announce its sovereign rating assessment in late July, while FTSE Russell has postponed Indonesia’s re-ranking review until at least September for further monitoring. At the same time, the rupiah continues to face pressure from a stronger U.S. dollar, with the DXY remaining above 101. Although MSCI acknowledged recent reform efforts by the IDX, OJK, and KSEI, external pressures and lingering concerns over market accessibility continue to weigh on sentiment toward Indonesian assets.

On the monetary side, Bank Indonesia recently raised the BI Rate by 25bps to 5.75%, bringing cumulative tightening since April to 100bps as policymakers prioritize rupiah stability and inflation control. Encouragingly, domestic liquidity conditions improved in May, with loan growth accelerating to 11.5% YoY and deposit growth remaining healthy. BI has also maintained a pro-growth stance through various macroprudential easing measures, including expanded repo facilities, higher external funding limits for banks, and continued government bond purchases to support liquidity.

Despite these supportive measures, we remain cautious on the 2H26 outlook. Outstanding SRBI has surpassed Rp1,000 trillion, absorbing a growing portion of domestic liquidity and partially offsetting BI’s accommodative initiatives. With capital outflow risks still present and rupiah stability remaining the central bank’s primary objective, we expect economic activity and loan growth to moderate in the second half of the year. While potential Fed easing in 3Q26 could provide temporary relief for emerging market currencies, we continue to anticipate an additional 50bps of BI Rate hikes by year-end, reflecting the challenging balance between supporting growth and maintaining macroeconomic stability.