The Meeting of Bank Indonesia's Board of Governors (Rapat Dewan Gubernur - RDG) on 3rd July 2008 has decided to raise BI Rate by 25 bps to 8.75%. This decision was taken after careful examination on the risk against the stability of Indonesian economic and financial system, as well as the prospects for economic growth this year and next year.

"The inflation factors in 2008 mainly come from the impact of the rise in fuel and food prices. However, Bank Indonesia also sees more dominant factors on the demand side with lending and money supply kept rising up to Q2 2008 and the indication of higher inflation expectation which may result in inflation increase of the second round (second round effect). Therefore, Bank Indonesia sees the need to raise BI Rate in order to prevent the increase of fuel and food prices from having the domino effect on the prices of other goods. BI will keep using the existing instruments in a flexible and measurable manner to lower the inflation of 2009 to fall in the range of 6.5% -7.5%. To that end, BI will maintain intensive coordination with the Government. For the year 2008, until the completion of the election of 2009, Indonesia is predicted to enjoy economic growth, contributed by high public consumption, high government spending, and good export performance," the Governor of Bank Indonesia Boediono announced after the Meeting.

The actual inflation in June 2008 on an annual basis was recorded 11.03%, which means the inflation of January-June 2008 has reached 7.37%, or higher than the inflation of the same period in 2007 of 2.08%. Taking account of the factors of risk and inflation of the upcoming months, Bank Indonesia has predicted that the inflation of 2008 (full year) will fall in the range of 11.5% to 12.5%. Indonesia's Balance of Payments is estimated to remain in good position and bring positive impact on exchange rate stability. Foreign exchange reserves as of end of June 2008 were recorded at USD 59.5 billion, equivalent to 5.1 months of imports and the Government's foreign debt payments. Meanwhile, the banking industry has continued to produce good performance and remain strong.

Bank Indonesia will always take careful monitoring on the economic condition that is still shrouded by a high level of uncertainty. BI's Board of Governors believes that the careful and measurable monetary policies still need to be maintained. The policies on BI Rate will be complemented with the optimization of Open Market Operations policies that support exchange rate stability. 
(FDT, source: http://www.bi.go.id/web/id/Moneter/Kebijakan+Moneter/)

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