JAKARTA - THE credibility of Indonesia's central bank has been badly mauled by an ongoing corruption scandal and must be urgently rebuilt, its new chief said on Wednesday.

Bank Indonesia (BI) Governor Boediono said his primary mission since taking the reins at the bank in May was restoring its tarnished reputation.

'This is my urgent priority. Over the next few months I will look to focus on our internal issues,' he told reporters.

'I would like to beef up the morale of my colleagues, which has been impacted by the recent legal issues... Hopefully we can restore our credibility in the market.' Two former senior BI officials were charged last week with graft and abuse of power related to the alleged misappropriation of almost S$15 million in bank funds in 2003.

Former governor Burhanuddin Abdullah and two lawmakers have been declared suspects, while the father-in-law of President Susilo Bambang Yudhoyono's son - former BI deputy governor Aulia Pohan - has been named in indictments.

The ongoing trial of the two former BI officials is an embarrassing distraction from what Mr Boediono said was his other priority - keeping inflation from spiralling out of control.

He said interest rates would be used 'flexibly' to calm inflation even at the expense of slower economic growth in Southeast Asia's largest economy.

BI's benchmark rate was hiked for the third time in as many months on July 3 and now stands at 8.75 per cent.

'Monetary policy will be geared solely toward achieving single-digit inflation next year and beyond,' he said.

Inflation hit 11.03 per cent in June and has been accelerating at its fastest pace in almost two years, but the bank expects it to settle between 6.5 and 7.5 per cent by the end of 2009.

Prices spiked after subsidised domestic fuel prices were hiked by around 30 per cent in May as the government tried to shield its budget from runaway crude oil prices.