Bank Indonesia faces mounting pressure to hike after MSCI threat fuels market rout

The threat by MSCI to cut Indonesia's market to standalone status has significant implications for fund managers and investors, as it could lead to a reduction in foreign investment flows into the country. A downgrade would likely result in Indonesia being removed from key emerging market indices, making it less attractive to investors who track these benchmarks. This could have a negative impact on the performance of funds with exposure to the Indonesian market, and may lead to a rebalancing of portfolios.

The pressure on Bank Indonesia to hike interest rates is a response to the market turmoil triggered by the MSCI threat, as well as the weakening of the rupiah. A rate hike would help to stabilize the currency and attract foreign investment, which could help to mitigate the potential outflows resulting from a downgrade. However, it would also increase borrowing costs for businesses and consumers, which could have a negative impact on economic growth. Fund managers will be closely watching the central bank's decision, as it will have a significant impact on the attractiveness of Indonesian assets.

The key thing to watch next is the decision by Bank Indonesia on interest rates, and the subsequent reaction of the market. Fund managers will also be monitoring the situation closely, as it will have a significant impact on their investment decisions. Additionally, the final decision by MSCI on Indonesia's market status will be closely watched, as it will have a significant impact on the country's attractiveness to foreign investors. The combination of these factors will have a significant impact on the performance of funds with exposure to the Indonesian market, and will be closely watched by investors and fund managers alike.

Originally reported by cnbc.com. FundNews adds analysis for finance & markets readers.