JAKARTA, 07 October 2008 - Bank Indonesia has increased its policy rate by 25 basis points to 9.5% as they continue their ongoing battle with inflation. Indonesia did not join Australia, who cut rates today by the highest since a recession in 1992. It is predicted however that today’s increase may be the last this year as the aim of the central bank moves onto supporting growth rather than continuing the fight against inflation.

The central bank’s decision was as expected by economists’ which is now the sixth straight month the central bank has increased the key interest rate. The Rupiah fell 0.2 percent to 9,595 against the dollar in Jakarta, extending yesterday’s 1.5 percent decline although it is a continuation as the currency has dropped by 2.3 percent in the last month alone. This is made worse by the increasing cost of importing fuel, soybean and wheat with consumer prices increasing 12.1 percent last year.

Stuttering growth is in line with the rest of the Asia, although the accelerating inflation and a drop in commodity stocks has resulted in the biggest decline in the benchmark stock index yesterday since the 2002 Bali bombings, which is an indication of the severity of the decline and goes a long way to explaining the actions of the central bank.

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