Updated version 1 - Amid fears of being removed from MSCI and after authorities curbed the decline, Indonesia’s stock market rose slightly.

The full text adds details of the measures announced by Jakarta authorities, market trends, and analyst commentary.

Ankur Banerjee/Stefanno Sulaiman

Reuters Singapore/Jakarta, October 20 - On Tuesday, Indonesian stocks rose after Jakarta authorities introduced measures to limit sell-offs. This followed two consecutive days of record-breaking (link) $82 billion slumps triggered by a warning from index provider MSCI (link) that Indonesia could be removed from global indexes.

Jakarta's benchmark index .JKSE climbed 3% on Tuesday after hitting a six-year low the previous session—having been the world's worst performing stock market this year, with a cumulative loss of 14.8% over Friday and Monday.

Last Friday, MSCI said it was considering (link) downgrading Indonesia from “Emerging Market” to “Standalone Market” (link), a move that exceeded expectations and shocked investors and officials.

To stem a roughly 40% stock market sell-off this year, the Indonesia Stock Exchange this week reduced the daily price floor from 15% to 7%, while also setting a floor of 1 rupiah for shares priced at 14 rupiah or below.

This move by the index provider also pressured the rupiah IDR=, although on Tuesday the currency firmed slightly against the dollar to 18,010, remaining near its June record low of 18,190.

On Monday, Jakarta authorities held a meeting with the index provider to seek clarification on its latest warning, which stemmed from concerns that Indonesia had yet to improve equity transparency or curb collusive trading.

Also on Monday, Indonesian President Prabowo Subianto held talks with top financial officials including the chief of the Financial Services Authority (OJK), the finance minister, and the central bank governor.

OJK Chairwoman Friderica Widyasari Dewi said regulators would continue to advance capital market reforms in Indonesia, particularly in transparency, liquidity, and enforcement against various violations.

“One particularly important message is that we must continue to strictly enforce regulations against those involved in collusive trading and other similar violations,” Dewi said after the meeting.

On Friday, regulators announced penalties totaling 2.1 trillion rupiah against individuals involved in suspected manipulation of shares in three companies.

As a further response to MSCI’s concerns, the Indonesia Stock Exchange (IDX) said on Monday it would remove from its benchmark index any stock with highly concentrated holdings by the same individual or entity.

“We will continue to pursue measures to improve transparency, enhance market credibility, and strengthen corporate governance,” IDX president Jeffrey Hendrik said after meeting with MSCI.

George Xu, a director in Fitch Ratings’ sovereign ratings team, said recent market concerns and heavy sell-offs heightened the risks flagged by the rating agency in March when it revised Indonesia’s sovereign outlook (link) to “negative.”

“From a sovereign ratings perspective, we do not expect the discussion announcement alone to have a significant immediate impact on credit quality,” he said, but noted that external pressures could drive up government borrowing costs and erode buffers.

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