By Ankur Banerjee and Stanley Widianto
JAKARTA/SINGAPORE, Feb 6 (Reuters) – Indonesia’s stocks and currency skidded on Friday after Moody’s lowered the country’s credit rating outlook, the latest jolt for Southeast Asia’s largest economy, wiping about $120 billion off its equity market in a turbulent start to the year.
International investors have reacted nervously to President Prabowo Subianto’s attempt to ramp up growth to 8%, as concerns over fiscal health and central bank independence cool sentiment on Indonesia.
The benchmark Jakarta Composite Index lost 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 so far, after last week’s decline of 6.9%.
Moody’s move to cut the outlook to negative from stable for the $1.4-trillion G20 economy, citing reduced predictability in policymaking, came a week after MSCI flagged transparency issues that triggered the market rout.
The agency also cited concerns about policy effectiveness and signs of weakening governance, which could erode Indonesia’s long-established policy credibility if they persist.
‘NO REASON TO DOWNGRADE’
Finance Minister Purbaya Yudhi Sadewa brushed off the concerns on Friday, saying Indonesian economic fundamentals were strong, with economic growth accelerating and the fiscal deficit, though swelling, under control.
“There’s no strong reason to downgrade,” Purbaya told reporters, adding that fiscal policy was on track to boost growth.
“On the flip side, we should slowly see prospects for an upgrade. Maybe by year-end, when our economic growth is 6% or more.”
Prabowo’s year-old sovereign wealth fund Danantara Indonesia, his main vehicle to push growth, said Moody’s rating affirmation showed confidence in long-term prospects.
However, it called the agency’s outlook cut “a constructive reminder to strengthen our instutitional foundations”.
Moody’s said that without sufficient policy coordination and cohesiveness, Danantara’s establishment raised risks to policy credibility and potential contingent liability for the government.
In a statement, Danantara chief Rosan Roeslani said the fund was still in an institution-building phase and would follow global best practices.
‘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,” OCBC economists said.
Authorities’ responses to avert a rating downgrade would be watched closely over the next year or more, they added in a note.
Indonesia’s dollar bonds stayed under pressure, though they recouped some small losses from Thursday. The yield on 10-year benchmark bonds was little changed at 6.317%, LSEG data showed.
“The main potential impact on Indonesian markets is a higher risk premium across asset classes,” said Rully Arya Wisnubroto, a market analyst at Mirae Asset Sekuritas Indonesia.
This would put pressure on long-term government bonds, state-owned enterprises’ and major banks’ stocks, as well as sentiment toward the rupiah and capital flows, he added.
‘MITIGATE THE IMPACT’
Moody’s Baa2 rating for Indonesia puts the sovereign at the second-lowest tier of investment grade.
The two other major agencies, S&P Global Ratings and Fitch Ratings, currently rate Indonesia similarly, both with a “stable” outlook. They have yet to issue reviews this year.
“Recent volatility in Indonesian stock prices have not materially affected our views on the sovereign ratings,” Rain Yin, a sovereign analyst at S&P, told Reuters in an emailed response.
Yin, however, cautioned that fiscal deterioration could exert more downward pressure on S&P’s rating in the absence of offsetting improvements.
Fitch did not immediately respond to a request for comment.
Official’s vows for changes and the resignations of five top officials of the financial regulator and stock exchange have failed to stabilise the market.
Foreigners have already dumped about $860 million worth of shares in net terms since last Wednesday, exchange data showed, versus $1 billion in sales for the whole of 2025.
(Reporting by Rae Wee in Singapore, Stanley Widianto, Fransiska Nangoy and Gayatri Suroyo in Jakarta and Karin Strohecker in London;Writing by Gibran Peshimam;Editing by Shri Navaratnam and Clarence Fernandez)
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