Indonesia holds interest rates after recent hike

CENTRAL BANK. The facade of Bank Indonesia building is seen in the capital city of Jakarta. File photo by AFP

JAKARTA, Indonesia – Indonesia's central bank held its key interest rate Thursday, December 11, taking a break after an unexpected hike last month aimed at keeping inflation in check following an increase in fuel prices.

Bank Indonesia maintained the rate at 7.75% following a 25 basis point increase in November, a day after President Joko "Jokowi" Widodo raised fuel prices by almost a third in a bid to cut crippling government subsidies.

Inflation jumped to 6.23% year-on-year following the fuel price increase due to the higher cost of transport as well as everyday goods, which are now more expensive to deliver, and is likely to rise further.

But analysts say another rate increase is unlikely any time soon as the bank is also concerned about economic growth, which has sunk to 5-year lows.

Spokesman Peter Jacob said Thursday that the central bank's current policy would still “ensure that pressure from short-term inflation... is under control”.

Last month’s interest rate increase was the first for a year and the rate is now at its highest level for 5 years.

The government estimates the fuel price rise will lead to billions of dollars of savings in next year's budget, money that Widodo plans to divert to overhauling infrastructure and funding policies to help the poorest. – Rappler.com