Bank Indonesia (BI), which raised its BI rate by 175 basis points in 2013 to curb inflation and defend its embattled rupiah currency, added that the country's current account deficit should also narrow and this should reduce the pressure on the exchange rate.
"Monetary policy will remain consistently directed towards controlling inflation within its target corridor and bringing the current account deficit to a healthier level through interest rate policy and exchange rate stabilisation according to economic fundamentals," the BI said.
Indonesia faced what the BI described as "a number of arduous challenges" in 2013 as a global slowdown pushed down the prices of its export of commodities, inflation jumped due to higher fuel prices and is currency dropped as investors withdrew funds following expectations that the U.S. Federal Reserve would start to wind down its asset purchases.
Economic growth is forecast by the central bank to have dropped to 5.7 percent in 2013, down from 2012's 6.2 percent, inflation soared to 8.38 percent from 4.30 percent and the current account deficit swelled to 3.5 percent of Gross Domestic Product from 2012's 2.8 percent.
But the central bank sees better times ahead, expecting an improvement in the global economy in 2014 "hence propping up the Indonesian economy looking ahead, both in terms of the trade channel and the financial channel."