The central bank of Indonesia, Bank Indonesia, has raised its benchmark interest rate (BI rate) and deposit facility rate (Fasbi) by 50 bps to 6.50 percent and 4.75 percent respectively. Bank Indonesia governor Agus Martowardojo said that this policy change is necessary to keep Indonesia's inflation figure within the target range. Last month, prices of subsidized fuels were raised by the government, which led to higher inflation in June (5.90% YoY). However, the impact of higher fuel prices is expected to make a deeper impact in July.
Bank Indonesia expects monthly inflation to exceed two percent this July, before moderating in August and September. The institution recently revised its inflation target for 2013 due to the higher fuel prices. The new inflation target is now set between 7.2 and 7.8 percent, significantly higher than its initial assumption of 4.5 percent.
On 13 June 2013, the central bank of Indonesia had already raised its BI rate by 25 bps to 6.0 percent amid concerns about the inflationary impact of a hike in subsidized fuel prices (that was implemented one week later) as well as increasing uncertainty in global financial markets as central banks' may scale back stimulus programs. Previously, the central bank maintained a historic low BI rate of 5.75 percent for 16 months.
Bank Indonesia Benchmark Interest Rate: