Indonesia's central bank raises interest rate to 6.5%

Indonesia's central bank raised its benchmark interest rate by 50 basis points to 6.5 percent Thursday to cool down inflation expectations after a fuel price hike last month.

The central bank also raised its overnight deposit facility rate, the interest rate paid to local lenders for short-term deposits at the central bank, by 50 basis points to 4.75 percent.

"The policy was adopted to ensure that rising inflation after hike-subsidized fuel prices could soon return to the target trajectory," the bank said in a statement.

Inflation in June increased by 1.03 percent and Bank Indonesia estimated the fuel price hike help push other prices higher.

The bank indicated it also will continue to pursue stabilization of the exchange rate and maintain adequate liquidity in the foreign exchange market.