Indonesian financial markets resumed a broad selloff on Friday after Moody's Investors Service revised the country's sovereign credit outlook to negative from stable, adding to pressure that has shaken the nation's asset prices since an $80 billion equity rout last week.
The benchmark Jakarta Composite Index fell almost 3% while the rupiah plunged as much as 0.36% to 16,885 against the dollar - its weakest level since January 22 - leaving the currency down about 1% year to date. For the week to date, stocks were off 4.7%, adding to a 6.9% decline recorded the prior week.
Moody's decision to change the outlook for Indonesia's roughly $1.4 trillion G20 economy cited growing unpredictability in policy decisions and signs of weakening governance. The move followed a recent market rout that MSCI said stemmed from transparency concerns.
Regulatory and government reactions
Indonesia's financial regulator responded by underscoring that Moody's affirmation of the country's Baa2 rating still reflects solid economic fundamentals, buoyed by the resilience of the financial sector and robust growth. The sovereign wealth fund Danantara Indonesia, the central vehicle for the administration's growth agenda, likewise said the rating affirmation signalled confidence in the country's long-term prospects, while noting the outlook downgrade pointed to the need for institutional reform and more consistent policy.
Indonesia's chief economic minister, Airlangga Hartarto, described the ratings moves as premature, saying ratings agencies and global markets were "yet to understand" the administration's strategy to lift growth toward an 8% target.
Market analysts and bond moves
OCBC economists called Moody's outlook change "a warning shot," suggesting it could prompt other agencies to review Indonesia if policymaking remains subject to heightened uncertainty. They said authorities' responses will be closely watched, and that credible policy choices are necessary to avert a potential downgrade in the next 12 to 18 months.
International bond markets reacted to the announcement on Thursday, with longer-dated dollar-denominated Indonesian sovereign debt slipping 0.3-0.5 cents and many issues trading at their weakest levels in five months, according to Tradeweb data.
Rully Arya Wisnubroto, a market analyst at Mirae Asset Sekuritas Indonesia, observed that the main market impact would be a higher risk premium across asset classes. He highlighted particular vulnerability for long-term government bonds, stocks of state-owned enterprises and major banks, and cautioned about downside pressure on the rupiah and capital flows.
Ratings agencies and fiscal considerations
Other global ratings agencies have not yet released reviews this year. Rain Yin, a sovereign analyst at S&P Global Ratings, said recent equity volatility had not materially affected S&P's views on Indonesia's sovereign ratings and that she did not expect the economy or fiscal performance to be negatively and significantly affected if the government acts to shore up investor confidence. She warned, however, that fiscal deterioration could put downward pressure on S&P's rating unless offsetting improvements are made.
Fitch had not provided an immediate response to inquiries about its view.
Policy fallout and market confidence
The market reaction has not been calmed by officials' promises to make changes or by the resignations of five senior figures from the financial regulator and the stock exchange. Net foreign outflows accelerated, with overseas investors selling a net of about $860 million in equities since last Wednesday, compared with total foreign sales of around $1 billion across all of 2025.
Observers linked part of the pressure to international investor unease around President Prabowo Subianto's stated ambition to lift Indonesia's growth rate to 8%. Concerns cited by market participants include policy uncertainty, a widening fiscal deficit and questions about central bank independence - all factors that Moody's said could, if persistent, erode Indonesia's long-established policy credibility.
Outlook
With market participants watching for signals from policymakers, the immediate outlook hinges on whether authorities take credible steps to address transparency and governance concerns and to stabilise investor sentiment. Analysts and ratings firms have indicated that the path of fiscal policy and the clarity of institutional decision-making will be central to whether the recent negative momentum eases or deepens in the months ahead.
The coming weeks will likely feature heightened scrutiny of official announcements and market flows as investors reassess risk premia across Indonesian asset classes.