Volatility in Indonesia’s financial markets has yet to subside following Morgan Stanley Composite Index (MSCI)’s decision to freeze the rebalancing of Indonesian equities, a move that continues to weigh on the rupiah.

On Friday (Jan. 30, 2026), the rupiah opened weaker in the spot market, tracking broader pressure across most Asian currencies. The rupiah fell 0.29% to Rp16,795 per US dollar, reflecting investor caution amid rising domestic risks.

The currency is facing dual pressure, driven by regional weakness and unresolved domestic concerns. Markets are still assessing the extended impact of MSCI’s decision, which has prolonged uncertainty over foreign capital inflows, particularly from passive investors that rely heavily on global indices as benchmarks.

Concerns over investability, market liquidity, and the structure of Indonesia’s equity market have further eroded investor confidence. On the domestic front, policy dynamics and governance issues within economic institutions have come under scrutiny, including the appointment of a new Deputy Governor of Bank Indonesia perceived to have close ties to the President.

Although the change does not formally alter the monetary policy framework, it has raised questions regarding central bank independence and policy consistency—sensitive issues for global investors amid fragile market conditions.

Meanwhile, market authorities have stepped up oversight following heightened volatility and heavy selling pressure in the equity market over the past two days. Before sentiment surrounding the central bank leadership change had eased, markets were hit by another shock as Indonesia Stock Exchange (IDX) President Director Iman Rahman announced his resignation on Friday morning.

In a statement in Jakarta, Iman said his decision was taken as a form of accountability for the market turmoil over the previous two days.

Given the combination of external and internal headwinds, the rupiah’s upside potential is expected to remain limited. Future movements will largely depend on capital flow stability, signals from monetary authorities, and concrete measures by market regulators to contain volatility.

Following MSCI’s announcement, Goldman Sachs Group Inc. downgraded Indonesian equities to underweight, warning that MSCI’s investability concerns could trigger capital outflows exceeding US$13 billion should Indonesia be downgraded to frontier market status.

In a worst-case scenario, Goldman estimates that a reclassification from emerging market status could force MSCI-linked passive funds to sell up to US$7.8 billion in assets. An additional US$5.6 billion in outflows could materialize if FTSE Russell revises its methodology and reassesses the free float status of Indonesian stocks.

Goldman also noted that regional active fund managers’ overweight positions in Indonesia could amplify downside risks. A potential downgrade, combined with mounting market pressure and declining liquidity, may prompt long-only investors to rebalance portfolios and attract speculative flows from hedge funds.

Market pressure was further reinforced after UBS Group AG downgraded Indonesian equities to neutral from overweight. UBS warned that MSCI’s investability concerns and the risk of reclassification to frontier market status would remain a persistent overhang until regulatory clarity emerges and MSCI completes its reassessment.