Indonesian stocks rose on Tuesday as authorities in Jakarta moved to stem a record rout ignited by index provider MSCI's threat to expel the country from its global indexes, Reuters reported. The benchmark index rose about 4% on Tuesday, after hitting a six-year low in the previous session; over Friday and Monday it had dropped 14.8% in a two-day sell-off that wiped out about $82 billion in market value — yaani $82 billion, about 8,200 crore dollars. The index is still down about 40% this year and is the world's worst-performing major stock market in 2026, according to Reuters.

MSCI said on Friday that it was considering shifting Indonesia from 'emerging market' status — which it has held since 1989, Bloomberg reported — to 'standalone' status, alongside markets such as Lebanon and Zimbabwe. MSCI cited concerns that Indonesia had not improved ownership transparency or clamped down on coordinated trading. The warning was more severe than the one MSCI issued in January, when it raised the possibility of a downgrade only to 'frontier' status. UBS estimated, in reporting by Reuters, that a move to standalone status could trigger about $4 billion of passive fund outflows — yaani about 400 crore dollars — with active investors potentially adding a further $15 billion, yaani about 1,500 crore dollars.

The sell-off spread beyond stocks. The rupiah weakened to 18,030 per dollar on Tuesday, near its June record low of 18,190, and has fallen about 8% this year, Bloomberg reported. On Monday the currency had traded at 18,040 per dollar, the Indonesia Stock Exchange halved its daily down limit to 7% to slow the selling, and a slide in government bonds pushed the 10-year yield to 7.4%, Reuters reported. The financial regulator also unveiled sanctions over alleged trading manipulation in three firms, with fines totalling 2.1 trillion rupiah — about $116.4 million, yaani roughly 11.64 crore dollars.

Jakarta's first fix came after an online meeting with MSCI on Monday. The Indonesia Stock Exchange said it would exclude from its benchmark index any stocks with a high concentration of ownership by any person or entity. 'We are doing what is best for our market,' the exchange's president director Jeffrey Hendrik said, adding that the affected stocks account for roughly 18% of the total index weight. Gary Tan, a portfolio manager at Allspring Global Investments, said excluding tightly held stocks should help address some investability concerns, but that implementation would be key.

Attention now turns to Bank Indonesia, which decides interest rates on Wednesday. Bloomberg reported that Citibank now expects a pre-emptive 50-basis-point increase to 6.25%, abandoning its earlier call for no change, while Capital Economics and Permata Bank expect a 25-basis-point rise to 6%. The central bank has held its benchmark seven-day reverse repurchase rate at 5.75% since June. 'Not delivering a rate hike on Wednesday would run the risk of disappointing investors and fueling further downward pressure on the currency,' said Jason Tuvey, deputy chief emerging markets economist at Capital Economics. He added that a decision to hold could revive concerns that the central bank is bowing to political pressure.

MSCI's proposal is not final: the index provider is consulting market participants, and reports say a final decision is expected by mid-2027. For now, Southeast Asia's biggest economy is racing to prove its market is transparent enough to keep the emerging-market label it has held for nearly four decades — and the foreign investment that comes with it.

Sources: Reuters (Oct 19-20, 2026); Bloomberg (Oct 20, 2026).