Bank Indonesia may hold key rate as inflation hits 7 percent

Still, that may not be enough for Bank Indonesia to raise its benchmark rate when its board of governors meets on Wednesday, January 5, analysts and economists said.

Annualized inflation hit 6.96 percent in December, up from 6.33 percent in November.

Bank Indonesia may hold the benchmark rate at its current level for as long as possible to help support an economy expected to grow 6.4 percent in 2011 and to manage the risk from capital inflows.

Indonesia, which lags behind its peers in monetary tightening, "will feel the need to contain rising inflation in next few months," an expert says.

Analysts and economists said Bank Indonesia may need to raise its key rate by 25 basis points in the second quarter of this year.