The 25 bps increase in the benchmark rate (BI rate) - in combination with the 25 bps hike of the deposit facility rate known as the Fasbi to 4.25 percent - indicates the central bank's intention of supporting the IDR rupiah by encouraging lenders to store money at the central bank, while making it less attractive for people to borrow money from lenders, thus reducing the money supply in society.

Indonesia's main stock index fell 1.92 percent today (13/06) due to domestic and international concerns. On the domestic side, negative market sentiments were brought on by the fuel subsidy issue (and its inflationary pressures), the weakening rupiah, the BI rate hike, falling foreign exchange reserves, and the trade deficit. Internationally, speculation about central banks (USA and Japan) that want to reduce stimulus programs and the lower forecast for global economic growth (China's economic growth particularly) make investors shy away from emerging markets, including Indonesia.

The impact of the BI rate hike may be felt most in Indonesia's property sector, according to Edwin Sebayang, Head of MNC Securities in an interview to Bisnis Indonesia (13/06). Stocks in Indonesia's property sector have - by far - outperformed Indonesia's main stock index (IHSG) this year so far.

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