BI Rate Raised 25 bps to 8.75% - Bank Sentral Republik Indonesia
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August 26, 2019

No.10/ 32 /PSHM/Humas

Today, 3 July 2008, the Board of Governors' Meeting at Bank Indonesia decided to raise the BI Rate 25 bps to 8.75%. This decision was taken after careful consideration of the risks to economic stability and the Indonesian financial system and the economic growth outlook for this year and next year.

"The major source of inflationary pressure in 2008 is the impact of the fuel price hike and soaring food prices. However, Bank Indonesia is also aware of mounting demand side pressure in line with the rapid expansion in credit and the money supply lasting through Q2/2008. Added to this are indications of stronger inflation expectations that could trigger second round effects. For this reason, Bank Indonesia sees the need to raise the BI Rate to prevent knock-on effects from the fuel price hike and food prices on other goods. BI will stay the course with flexible, measured use of existing policy instruments to curb inflation in 2009 within the 6.5%-7.5% range. To achieve this, BI will coordinate actions very closely with the Government. In 2008 and until the end of the national election in 2009, Indonesia's economic growth is predicted to remain strong, buoyed by high levels of private consumption and Government and adequate export performance," explained Governor of Bank Indonesia Boediono after the Board of Governor's Meeting.

The annual rate of inflation in June 2008 reached 11.03%. This brings inflation for January-June 2008 to 7.37%, well above the 2.08% charted for the same period in 2007. In view of the risks and upward pressure on inflation in the coming months, Bank Indonesia predicts inflation in 2008 to reach 11.5%-12.5%. Indonesia's balance of payments is expected to maintain strong performance, with positive impact on exchange rate stability.  International reserves at end-June 2008 were recorded at USD 59.5 billion, equivalent to 5.1 months of imports and servicing of official foreign debt. The overall condition of the banking industry reflects strong performance and resilience.

Bank Indonesia will keep closely monitoring the condition of the economy, which is still marked by various uncertainties. In the opinion of the Board of Governors, it is essential to stay the course with a prudent, measured monetary policy stance. The BI Rate decision will be supported by optimisation of Open Market Operations and policies for bolstering exchange rate stability.

Jakarta, 3 July 2008
Directorate of Strategic Planning
and Public Relations

Dyah N.K. Makhijani
Director

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