Indonesia's central bank on Friday decided to raise banks' reserve requirement ratio in a bid to curb lending amid rising inflation. It also left its benchmark interest rate unchanged at 6.5% as expected.

Bank Indonesia ordered lenders to set aside 8% of their deposit as primary reserves, up from the previous requirement of 5%, citing rising inflationary pressures and excess liquidity in the banking sector.

"The board of governors are of the view that it is important to take the measures in order to keep inflation within target," Bank Indonesia said in a statement."The combination of these policies is considered adequate to maintain monetary stability and the stability of the financial system amid high capital flows."

Consumer price inflation in South-East Asia's largest economy jumped 6.4% in August, a 16-month high, and above the bank's 4-6% target range. But this was less than the rate forecast by analysts, while food inflation eased slightly to 13.2% in August.

Observers said the bank could freeze interest rates at their current level for the rest of the year to protect the recovery. "Inflation remains above the 6 per cent target ceiling, but BI judges that the inflation pick-up will prove to be temporary and expects the [annual] change to fall back to the target by [the fourth quarter]," Capital Economics said in a note before the decision.

The bank also set a loan-to-deposit ratio in the range of 78-100% to control liquidity more rigidly, and warned that it will punish banks that fail to meet the targets. Lenders will be given six months to adjust their LDR to the new range.

The central bank noted that domestic demand was strong in Indonesia at a time when the recovery appears to be cooling in advanced economies like the U.S., China and Japan. But it said the outlook for emerging market economies mainly in Asia was still favorable.

Indonesia's economy expanded 6.2% between April and June compared to the same period a year ago, and quicker than the 5.7% growth in the first quarter. The quarterly growth rate jumped to 2.8% from 1.9%.

With exports, investment and consumption remaining solid, the government expects the economy to grow 6% this year. Indonesian President Susilo Bambang Yudhoyono has set a 7.7% annual growth target for 2014

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