rate flexibility, capital flow management, and macroprudential measures. clear communication, policy coordination with the government on inflation, fiscal and structural reforms, as well as central bank cooperation on strengthening regional financial arrangements also play crucial role. the interest rate policy, as in other inflation targeting countries, is the main instrument to anchor inflation expectation and forecast going forward to fall within the targeted range. exchange rate policy is geared toward maintaining the stability along its fundamental path. some forms of capital flows management are implemented to dampen its short - term excessive volatility. macroprudential measures are targeted to manage procyclicality and excessive lending in some specific sectors. overall, the policy mix is intended to reinforce the effectiveness of all monetary transmission channels ( interest rate, exchange rate, money and lending, asset prices, as well as expectation channels ) to better withstand the spillover impacts of global monetary factors. bis central bankers ’ speeches interest rate policy indonesia is among the first central bank that ahead of the curve raised its policy rate in the aftermath of fed announcement on planned tapering in may 2013. we started to raise the bi policy rate by 25 bps in june 2013. we then aggressively raised the policy rate by 50 bps in july, another 50 bps in august, and 25 bps in september 2013. after pausing in october, we raised again the policy rate by 25 bps in november 2013. in total, the policy rate was increased by 175 bps to 7. 50 % within six months. we hold the policy rate since then and maintain our tight monetary policy stance. the primary objective of this aggressive interest rate policy is to preemptively anchor inflation expectation that initially arose from food price shocks. subsequently, the increase in policy rate is to contain the second round impact of fuel price hike that caused cpi inflation to reach its peak at 9. 0 % in july 2013. the large increase in policy rate is also to help in slowing down the domestic demand to dampen the current account deficit that rose to a peak of 4. 4 % of gdp in q2 - 2013. the timing of the aggressive increases in policy rate is also important as they help in responding to the capital reversals and increasing interest rate and risks in the global financial market following the fed announcement of planned tapering. we believe bold and aggressive response in interest rate is a key to send a strong and clear signal to the market in our monetary policy deliberation. higher consideration is given to domestic factors

fundamentals, sound macroeconomic and financial system stability, the best defense for withstanding the spillover effects of such global monetary and financial factors is to make our financial market more conducive and resilience to swings in the international investor preferences. we embark on a series of policy initiatives to deepen our financial market, especially domestic money and foreign exchange markets. in the foreign exchange market, we succeeded in establishing the jakarta interbank spot dollar rate ( jisdor ), reflecting the actual transacted exchange rates, as a reliable reference for the market. recently, the association banks of singapore ( abs ) recommends their members to use jisdor as bis central bankers ’ speeches reference rate in fixing their ndf transactions. we also introduce fx swap transactions with the banks both bilaterally and weekly auctions. further relaxation on regulations regarding underlying transactions for forward and swap as hedging instruments has been issued, and we are now campaigning to the banks and corporates to use more hedging instruments in managing their increasing exchange rate risks. we also make significant progress in deepening domestic money market, especially those of collateralized transactions. we use more reverse repo with government bonds in our monetary operations. we have succeeded in developing interbank repo using government bonds as underlying transactions. within less than three months, the size of transactions increases substantially from almost nonexistence to equivalent of usd3 billion. the number of banks participate in this interbank repo enlarges from only 8 to 65 banks, and more will follow. we believe this progress of financial deepening play important role in supporting our policy mix of monetary and macroprudential measures in responding to the spillover effects from the normalization process of the fed monetary policy. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches