MSCI’s mid-October consultation on reclassifying Indonesia from Emerging to Standalone Market over opaque ownership and suspected coordinated trading triggered an 11.57 percent drop in the composite index—the worst since 1998—and net foreign selling of 3.4 trillion rupiah in one day.

Despite the equity shock, the banking system remains solid with 13.26 percent credit growth, a 24.10 percent capital adequacy ratio, and 2.11 percent non-performing loans, while foreign reserves stand at $146.3 billion and core inflation has eased to 2.84 percent.

Bank Indonesia held its policy rate at 5.75 percent, deepened hedging incentives, and cut reserve requirements to support credit, aiming to prevent stock-market contagion from reaching the currency and real economy while the exchange and regulator address governance issues before MSCI’s final decision.

On Jakarta’s trading floors, October has felt like an earthquake. On October 15, MSCI opened a consultation on reclassifying Indonesia from Emerging Market to Standalone Market, citing opaque share ownership and suspected coordinated trading. The composite index lost 11.57% the next day, its worst session since 1998. Foreign investors sold a net 3.4 trillion rupiah of shares in a single sitting.

Walk a few blocks to the banking district, though, and the picture changes. Credit grew 13.26% year on year in September. Banks hold a capital adequacy ratio of 24.10%. Gross non-performing loans sit at just 2.11%. Foreign exchange reserves stood at US$146.3 billion at the end of September, enough to cover 5.3 months of imports.

Two Indonesias, in other words. One is shaking. The other, so far, is not.

That gap is the real story behind Bank Indonesia’s October decision to keep the BI-Rate at 5.75%, despite widespread expectations of a hike. The central bank’s task is no longer simply to defend the rupiah. It is to........

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