Indonesia raises benchmark interest rate to 7%

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Indonesian-rupiahThe Indonesian central bank raised its interest rates on August 29 after a hastily called meeting in a desperate effort to support the country’s weakening currency that has lost almost 12 per cent in 2013 and dropped to a 4-year low.

The rate was raised by half a percentage point to 7 per cent which helped the rupiah climb slightly on August 29, but the next day it crossed the 11,000 mark to the dollar, a level not seen since April 2009.

The country has to cope with a recordcurrent-account deficit, worse-than-estimated economic growth and inflation that is forecast to raise to 9.8 per cent in 2013.

The benchmark Indonesian stock index has plunged more than 20 percent in the last three months, making it one of the world’s worst performers over that period.

Indonesia also extended a bilateral swap deal with the Bank of Japan valued at $12 billion that will allow the two to borrow from each other’s foreign-exchange reserves. But analysts say the impact will be short-lived until investors can see for themselves that the current account deficit has indeed narrowed.

Indonesia is one Southeast Asian nation already hit hard by the expected move of the US Federal Reserve to taper it global bond buying measures in September, causing investors to reverse money flows to Asia back to the US.

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Reading Time: 1 minute

The Indonesian central bank raised its interest rates on August 29 after a hastily called meeting in a desperate effort to support the country’s weakening currency that has lost almost 12 per cent in 2013 and dropped to a 4-year low.

Reading Time: 1 minute

Indonesian-rupiahThe Indonesian central bank raised its interest rates on August 29 after a hastily called meeting in a desperate effort to support the country’s weakening currency that has lost almost 12 per cent in 2013 and dropped to a 4-year low.

The rate was raised by half a percentage point to 7 per cent which helped the rupiah climb slightly on August 29, but the next day it crossed the 11,000 mark to the dollar, a level not seen since April 2009.

The country has to cope with a recordcurrent-account deficit, worse-than-estimated economic growth and inflation that is forecast to raise to 9.8 per cent in 2013.

The benchmark Indonesian stock index has plunged more than 20 percent in the last three months, making it one of the world’s worst performers over that period.

Indonesia also extended a bilateral swap deal with the Bank of Japan valued at $12 billion that will allow the two to borrow from each other’s foreign-exchange reserves. But analysts say the impact will be short-lived until investors can see for themselves that the current account deficit has indeed narrowed.

Indonesia is one Southeast Asian nation already hit hard by the expected move of the US Federal Reserve to taper it global bond buying measures in September, causing investors to reverse money flows to Asia back to the US.

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