13 Jul 2013

Bank Indonesia raises interest rates

7:26 am on 13 July 2013

Indonesia's central bank has boosted interest rates in a bid to head off inflation led by spiralling food and fuel prices.

Bank Indonesia Governor Agus Martowardojo surprised the market on Friday by boosting interest rates by 50 basis points. The rate now stands at 6.5%.

The ABC reports it was the second interest rate rise under Mr Martowardojo.

"This policy is taken to ensure the growing inflation following the subsidised fuel price increase can soon bring the target back on track," he said.

The ABC reports the bank is also looking to bolster confidence in the domestic currency.

Confidence has been weakened as investors started moving billions of US dollars out, prompted by hopes of a US recovery.

Mr Martowardojo said the bank will keep putting its own foreign reserves in the market to keep the rupiah stable.

"It's the main duty of Bank Indonesia to keep the stability of the rupiah," he said. "We will make sure the rupiah reflects its fundamentals."