Indonesian equities trimmed early losses to trade flat on Wednesday after the central bank held its benchmark interest rate steady but reduced the reserve requirement ratio in an effort to boost lending.
The Jakarta Composite Index was trading near its last close of 5,278.888 points, compared to a 0.8% decline ahead of the decision.
Bank Indonesia kept its main interest rate unchanged for a fourth straight policy review but announced a gradual cut in the reserve requirement ratio to 7% from 9% and hiked its overnight deposit rate by 25 basis points to 5%.
BI signalled a preference to support the rupiah through its broader policy toolkit, including FX intervention and hedging facilities, instead of further rate increases, DBS senior economist Radhika Rao said.
The rupiah slipped back below the key 18,000 level to hold on to its title as the worst-performing Asian currency, down 7.4% this year. Analysts were nearly evenly split before the decision about whether the central bank would hold or raise rates, in a Reuters poll run from October 13 to 19.
Chandresh Jain, EM Asia, Rates and FX Strategist, BNP Paribas, said, "These decisions should be supportive for both the Indonesian bond and equity markets."
"Going forward, we remain positive on short-end Indonesian government bonds (up to five years) and expect BI to hike only if USDIDR breaches the 18,500 level," Jain added.
However, uncertainty persists after MSCI warned it could downgrade Indonesia to "standalone" from "emerging market" status, a move that could trigger a selloff by passive funds tracking global indexes.
Elsewhere, South Korea's KOSPI jumped 3.3% and Taiwan shares rose 1.3%, following a rosier demand outlook for AI from US earnings.
The MSCI gauge of emerging Asia equities rose 1.2%. Singapore shares added 0.8% and the Philippine stock market extended gains to a fifth day with a 0.3% rise.
The peso, on the other hand, slipped to a record low of 63.302 against the dollar, building the case for the Philippine central bank to tighten policy settings.
A Reuters poll found that analysts are expecting the Bangko Sentral ng Pilipinas to raise interest rates to 5.25% on Thursday, following three consecutive hikes totalling 75 basis points.
Inflation remains a sore point for the central bank, with the September print having accelerated to 7.2%, far above its target range of 2% to 4%.
Markets will also be watching the Bank of Korea's policy decision on Thursday, where it is expected to stand pat.
The Indian rupee jumped to its strongest level in six weeks, helped by foreign portfolio inflows related to the highly anticipated Jio Platforms' initial public offering.
The currency has added more than 2% in value over the last eight trading sessions.
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