JAKARTA: Indonesia's central bank will hold an extraordinary meeting on Tuesday, fuelling speculation for a rise in interest rates, a day after the president hiked fuel prices to tackle the country's twin budget and current account deficits.
In his first major economic policy decision as president, Joko Widodo on Monday raised subsidised fuel prices by more than 30 percent to help provide the necessary fiscal space to fund his reform agenda.
"There will be information on the BI (Bank Indonesia) rate today," said Peter Jacobs, central bank spokesman.
The meeting is due to begin at 0300 GMT. Indonesian fuel prices, among the cheapest in the world, were raised by 2,000 rupiah ($0.16) per litre, with subsidised gasoline now costing 8,500 rupiah a litre and diesel 7,500 rupiah.
The increase in fuel prices is expected to add 2 percent to annual inflation this year. The finance ministry estimates inflation at 7.3 percent at the end of the year.
Economists were mixed on whether the central bank will leave interest rates unchanged or raise them by 25 basis points.
"A token hike of 25 bps might well take place in that context to help cement BI's revamped reputation as a more proactive central bank since 2013," said Wellian Wiranto, economist with OCBC Bank. Indonesia's stock index rose as much as 0.7 percent in early trading on Tuesday, while the rupiah climbed to a 2-week high.
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