Indonesia raises key rate to highest in five years

JAKARTA (REUTERS) - Indonesia's central bank raised its benchmark reference rate by 25 basis points to 7.50 per cent on Tuesday, confounding expectations for a hold, as it strengthened defences for the rupiah ahead of any tapering of U.S. monetary stimulus.

Bank Indonesia (BI) raised the overnight deposit facility rate, or FASBI, by 25 basis points to 5.75 per cent and also its lending facility rate by 25 bps to 7.50 per cent.

The central bank now has raised rates a cumulative 175 basis points since June to prop up market confidence, when the rupiah - Asia's worst performing currency this year - was battered as investors pulled funds out of the weakest emerging economies.

Fifteen out of 17 analysts surveyed by Reuters had expected BI to hold the benchmark reference rate steady at 7.25 per cent, as inflation had moderated amid slowing growth.

Mr Andy Asmoro, senior economist at Bank Mandiri, noted that "BI will use all of their measures to lower current account deficit (CAD) and that's reflected in BI's statement, which inclines to a tightening bias. In the short term, this will help lowering CAD. But it needs more action in the medium- and longer term."

Indonesia's benchmark stock index fell after the announcement, and was down 1.39 per cent for the day.