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Indonesia hikes interest rate to 7.25 percent

September 12, 2013

JAKARTA, Indonesia (AP) — Indonesia’s central bank raised its benchmark interest rate Thursday for the second time in as many weeks, increasing it by a quarter percentage point to 7.25 percent, in a move meant to help stem a slide in the local currency.

Bank Indonesia announced the unexpected move in a statement saying that its purpose is “controlling inflation, stabilizing the rupiah exchange rate and ensuring the current account deficit is managed to a sustainable level.”

The increase comes two weeks after another surprise hike of half a percentage point to 7 percent, when the local currency fell to its lowest level in four years. The rupiah was trading at 11,494 to the dollar Thursday.

The bank also lowered its growth target for the year to 5.5-5.9 percent from 5.8-6.2 percent amid indications that household spending will decelerate.

Emerging economies have suffered an exodus of short-term foreign investment capital as prospects for developed economies including the U.S. and Europe improve.

In Asia, Indonesia and India have been the hardest hit because of weaknesses in their economies such as high inflation and current account deficits that reflect high imports of essentials such as oil.

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