REPUBLIKA.CO.ID, JAKARTA -- Bank Indonesia (BI) decides to increase BI rate by 25 bps to 7.75 percent. The central bank also raises lending facility by 50 percent to 8 percent, while Deposit Facility stays at 5.75 percent. The policy is following government's move to increase fuel price.

BI Governor Agus DW Martowardojo said the increasing of BI Rate could anchor expectation on inflation. "It also ensures inflation after fuel price hike to reach the target of 3-5 percent in 2015," Martowardojo said on Tuesday, November 18.

He said that central bank welcomed government's decision to divert fuel subsidy to productive sectors in order to increase budget allocations. BI see that fiscal reformation is a basic step to strengthen Indonesian fundamental economy. The move will also decrease import, which gives positive impact to current account.

Fuel price hike will increase other prices, such as transportation and food. Martowardojo said BI would cooperate with government to ensure inflation will be managed and temporary. Government's direct help is also believed to mitigate decline in purchasing power.

BI predicts that Indonesia can still grow by 5.4-5.8 percent in 2015. Economic growth will be higher in middle-long term with macroeconomic stability and maintained financial system.

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