Indonesian central bank raises interest rate to 7.5%

Indonesian central bank on Tuesday increased its benchmark interest rate by 25 basis points to 7.50 percent, the highest since 2009, in a bid to narrow current- account deficit that has hit rupiah amid high inflation, the bank announced here. The bank also raised deposit facility rate to 5.75 percent from 5.5 percent, according to the bank's statement. "This policy is taken by considering the current-account deficit that remains high as risk of uncertainty remains globally. So that this decision is made to ensure the current account deficit will decline to the healthy level and inflation remains in check," said the statement. Tuesday's decision has lifted the basic rate by 1.75 percent in total since early June, as the bank has been striving to shore up rupiah and cool inflation. Indonesia's inflation in October eased by 8.32 percent from a year earlier after climbing 8.40 percent in the previous month, according to the National Statistic Bureau. The country's trade balance registered a 660-million-U.S.- dollar deficit in September after chalking up a small surplus of 132.4 million U.S. dollars in August as import rebounded. The authorities have striven to cope with weakening rupiah against the dollar, elevated inflation and slowing offshore capital inflows as the country's export fell while import was up. The government increased subsidized-fuel prices by an average of 33 percent on June 22 and loosened exportation of mineral ores in August to tap more U.S. dollars. As a result, the central bank revised up its inflation target this year to 9.0 percent to 9.8 percent from 3.5 percent to 4.5 percent previously. Indonesia's economy expanded at a slower pace of 5.62 percent in the three months through September, from 5.81 percent in the second quarter and 6.2 percent in the first three months, according to the statistic bureau. The central bank has projected the gross domestic product at 5. 7 percent for this year, down from last year's 6.2 percent, Governor of the bank Agus Martowardojo said on Nov. 8. To help spur growth, the government has planned to unveil a stimulus package this month, Finance Minister Basri Chatib said, without giving further details.