UOB Singapore analysts Kay Hian and Suryaputra Wijaksana believe that Indonesia's short-term economic outlook may weaken as Moody's has downgraded the country's credit rating outlook from "stable" to "negative".
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Analysts pointed out that the Indonesian rupiah is the most affected and may weaken. Increased volatility in the rupiah will dampen foreign investment, impacting both long-term foreign direct investment and short-term portfolio inflows, especially in the bond market. The downgrade in rating outlook will also lead to a repricing of risk premiums in the bond market. Analysts stated: "Investors will demand higher yields to compensate for the expected increase in credit risk."
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