Fitch cuts Indonesia credit rating outlook to negative

Fitch Ratings downgraded Indonesia’s credit rating outlook to negative from stable, citing increased uncertainty and diminished credibility in policymaking, in a move that will fuel investors’ concerns about Southeast Asia’s largest economy.

Fitch became the second rating agency to revise Indonesia’s sovereign rating outlook downwards this year, after Moody’s lowered its outlook last month due to reduced predictability in policymaking.

Both agencies have kept Indonesia at its second-to-lowest investment grade rating, and a negative outlook means the agency’s next rating action could be a downgrade.

Moody’s outlook cut has rattled Indonesian financial markets and comes just after index provider MSCI flagged transparency issues that triggered a $120 billion stock market crash in January.

“The outlook revision reflects increasing policy uncertainty and the erosion of Indonesian policy, a mix of consistency and credibility due to increasing centralization of policy-making authority,” Fitch said in a statement on Wednesday.

“This could weaken the medium-term fiscal outlook, weaken investor sentiment and put pressure on external buffers.”

Fitch’s decision was widely covered in local media ahead of the official announcement. The finance and economy ministries and the central bank did not immediately respond to requests for comment.

Fitch said among the factors driving the downgrade in the outlook was the potential significant loosening in the fiscal and monetary policy mix resulting from the government’s focus on boosting economic growth to 8 percent from around 5 percent currently.

The rupiah and local financial markets were already under pressure before the outlook downgrade, as investors feared global inflation would rise after oil prices rose due to the war in Iran.

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