Indonesia's central bank, moving quickly to contain inflation after the government raised fuel prices more than 30 percent, hiked its benchmark interest rate by 25 basis points to 7.75 percent on Tuesday.
In his first major economic policy decision, President Joko Widodo on Monday night raised subsidized gasoline and diesel prices by more than 30 percent to help fund his reform agenda and tackle the country's budget and current account deficits.
"The increase of BI Rate is to anchor inflation expectations and to ensure that inflationary pressures remain under control and temporary, after the subsidized fuel price hike," said Bank Indonesia in a statement. "The decision is also consistent with the progress in managing current account deficit towards a more sustainable level."
The interest rate hike was the first rate-change since November 2013.
The last time the rate was 7.75 percent was March 2009.
Bank Indonesia (BI) also kept its overnight deposit facility rate, known as Fasbi, unchanged at 5.75 percent and raised its lending facility rate by 50 basis points to 8.00 percent.
The central bank has pushed for significant cuts in fuel subsidies, which have made it focus monetary policy on the big current account deficit instead of raising economic growth, which has fallen to 5.01 percent, its slowest pace in five years.
Indonesia's growth hasn't dropped below 5 percent since the third quarter of 2009, when it was 4.27 percent.