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Last Updated: Tuesday, 6 September 2005, 14:57 GMT 15:57 UK
Rupiah fall sparks new rate rise
President Susilo Bambang Yudhoyono
President Yudhoyono has promised to protect the poor
Indonesia's central bank has sharply raised its key interest rate for the second time in a week in an effort to halt a slide in the rupiah's value.

The increase of half a percentage point brings the rate to 10%.

The rupiah has lost more than 10% against the US dollar this year, because soaring world oil prices have put pressure on the Indonesian economy.

A fifth of the nation's budget goes on fuel subsidies and investors say plans to cut the cost do not go far enough.

Concerns about Indonesia's ability to finance the fuel aid have taken their toll on currency and stock markets.

The rupiah strengthened slightly after the interest rate move and was trading at 10,300 against the US dollar, compared with 10,360 previously.

Jakarta's main stock index closed 1.5% higher on Tuesday. Analysts said the latest rate rise had been largely expected.

Measures 'vague'

The rupiah began its tumble in August, as Indonesia was forced to sell the currency to buy dollars and pay for crude oil imports.

Man picking up a jerry can of kerosene
Higher fuel prices will hit the nation's most vulnerable people

A week ago, it hit a four-year low of 11,750 against the dollar, prompting the central bank to raise interest rates by three-quarters of a point.

President Susilo Bambang Yudhoyono said last week that fuel aid would be reduced after October.

However, analysts said the measures were vague and voiced concerns about a compensation package for the poor, which they said was state aid under a different name.

Even so, the plan was expected to push inflation up to 9% this year, central bank governor Burhanuddin Abdullah said on Tuesday.

Subsidies are a politically sensitive subject in Indonesia.

Fuel protests contributed to the downfall of former President Suharto in 1998.

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