Indonesia's central bank raised Thursday its key interest rate for the second time consecutively in two months to help ease inflation pressure triggered by higher prices of fuel and other commodities.

"High energy and food prices worldwide, as well as the recent hikes in domestic fuel prices have accelerated inflation... Bank Indonesia (BI) has counted in these (factors) in its decision to raise the rate," newly elected BI governor Boediono said.

Last month, BI raised its rate by 25 basis points to 8.5 percent from 8.25.

BI also plans to ease volatility in the exchange rate, absorb liquidity excess in banks and optimize open market operations in a bid to help put a break on speeding inflation.

"To optimize open market operations -- controlling national money supply by buying and selling government securities or other financial instruments -- BI will start using the overnight rate starting from June 9," said Boediono.

Economists said the strategies were also aimed at anticipating the second-round effects of the fuel price hike which have yet to fully materialize. The government raised fuel prices by an average of 28.7 percent on May 24.

Danareksa Research Institute chief researcher Purbaya Yudhi Sadewa said the 25-basis-points rise was moderate, and indicated that "BI is concerned about the economic growth, while easing inflationary pressures".

Purbaya said BI would likely moderately raise the rate again next month as year-on-year inflation in June was estimated to reach 11.3 percent.

Inflation in May accelerated to 10.4 percent from a year earlier due to the rise in fuel prices, according to the Central Statistics Agency (BPS).

The central bank forecasts inflation to reach between 11.5 and 12.5 percent by the end of 2008, while the government estimates it to hit 11.2 percent.

Purbaya said the economy would remain stable if BI managed to maintain the interest rate around 9 percent.

In the first quarter of 2008, the BPS reported the economy had grown 6.3 percent. The government expects the economy to grow by between 6 and 6.4 percent this year, while BI predicts it will only grow by a maximum of 6.2 percent.

Bank Negara Indonesia (BNI) senior economist Ryan Kiryanto said banks should not drastically raise interest rates to avoid a rise in bad debts, including non-performing loans, which could hurt the banking sector.