Indonesia raises key interest rate

JAKARTA — Indonesia's central bank raised its benchmark interest rate by 25 basis points to 6.75 percent on Friday, in a bid to head off inflation which has dented investor confidence, an official said.Bank Indonesia said its board had decided to increase its benchmark overnight rate from 6.50 percent on concerns that rising food prices could stoke inflation further.In a statement the bank said Southeast Asia's biggest economy was expected to grow at around 6.0 to 6.5 percent this year."The decision was made as a precaution to control expectations of inflation that has started to increase," the bank said on its website."The prospects for the global economy are improving.... This tendency has strengthened the board of governors' belief that Indonesia's economy could reach 6.0-6.5 percent growth in 2011."The consumer price index rose 7.02 percent year-on-year in January, more than market expectations of 6.81 percent and causing jitters on financial markets.Extreme weather has disrupted harvests and food distribution, pushing last year's annual inflation close to seven percent, above the official target of 4.0-6.0 percent.Prices of chillies, a staple in Indonesia, increased five-fold to around 100,000 rupiahs ($11) a kilogram (2.2 pounds) late last year.The government last month suspended import duties on wheat, soybeans, fertiliser and other food-related items for the rest of the year.The interest rate rise was the central bank's first rate adjustment since August 2009 and the first rise since 2008.HSBC economist Wellian Wiranto said the move came "not a moment too soon"."With inflation risks tilting towards the upside for months now, today?s decision is a prudent one. Going forward, we see at least two more 25 basis point rate hikes in the coming months," he said in an email."All in all, today forms a good chapter in BI?s credibility-building history book."Indonesia now joins other Asian countries such as China, India, Malaysia, South Korea and Thailand that have already tightened monetary policy in respon

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