We will closely see what policy will be taken."
Jakarta (ANTARA News) - Bank Indonesia (BI/the central bank) raised its benchmark rate by 50 basis points to 6.5 percent from the previous 6 percent, BI Governor Agus Martowardojo said.

"We raise the BI reference rate by 50 basis points to bring down the increasing inflation trend to its right track after subsidized fuel price hikes," the BI governor said here on Thursday.

He said that "we predict year-end inflation rate will reach 7.2 - 7.8 percent. We see that this inflation is moving upward."

Agus said that based on the results of BI surveys in 20 cities the transportation sector experienced an average inflation increase by about 33 percent.

"This increase is too high and triggers the inflation rate to continue moving upward. Besides, we should also pay attention to food price volatility as it has been showing turmoil," the BI governor said.

Agus said that the BI Board of Governors meeting therefore raised its benchmark rate by 50 basis points to 4.75 percent from the previous 4.25 percent. The interest rate of BI`s lending facility remained at 6.75 percent.

BI also reinforced the mixture of its policies. First, it continued its policy on the stabilization of the rupiah exchange rate based on its fundamental values and on maintaining enough liquidity in the foreign exchange markets.

Second, BI improved its loan to value ratio in the property sector, especially with regard to ownership housing credit facilities for certain house types.

Third, BI strengthens its coordination steps with the government focusing on minimizing inflationary pressures and stabilizing macro-economy and financial system.

BI deputy governor Halim Alamsyah said last week he was optimistic inflation would be normal in September.

"Based on data, simulation and prediction, at the latest, the inflation hike, especially because of recent fuel price hike, would be back to normal or even be lower in September," he said when launching a shariah economy movement program last Friday.

Halim said that capital has already started to enter into the country again. "Capital inflow has begun again through state bonds and the capital market would fluctuate again," he added.

"The fuel price hike has indeed triggered inflation but it is still under control with our economy still continuing to grow around six percent," he said.

He said it was not impossible for the national economy to improve due to compensations that the government has provided ahead of the 2014 general elections.

He said exports had also started to be relatively good although they were weak.

He said the weak exports occurred due to the drop in commodity prices although in terms of volume exports of prime commodities rose.

"We will closely see what policy will be taken," he said.

Regarding the central bank`s strategy to restore inflation Halim said BI has taken various measures.

"We have started intervening in the market, conducted market operations including in the rupiah market and stabilized state bonds. All of BI`s policies so far have already been good," he said.

Based on the National Statistics Agency data, the rate of inflation in June was recorded at 1.03 percent while inflation in the January to June reached 3.35 percent while year on year inflation at 5.9 percent. General inflation components contributed 1.03 percents while core inflation 0.32 percent.
(Uu.A014/H-YH)

Editor: Priyambodo RH
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