UPDATE 1-Indonesia c.bank: price policy should not hit economy

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NUSA DUA, Indonesia, July 28 (Reuters) - Indonesia's central bank governor said on Monday the bank's monetary policy aimed to absorb excess funds to tackle inflation, but should not hurt the economy.

Boediono also told reporters in the resort island of Bali that the central bank's policy objectives "could only be met by taking step-by-step measures."

"We take the stance from time to time that we don't need to say this is a tightening. The bottom line is there is excess liquidity, which could trigger unnecessary inflation," Boediono said.

"Secondly, it must not hurt economic activity, there must be enough liquidity. But not more than enough. This can only be achieved by taking step-by-step measures. From time to time, monitoring the market."

Bank Indonesia, like other central banks in Asia, is trying to fight off inflation without curbing economic growth. The bank has raised its key BIPG rate three times this year, by 25 basis points each time.

Analysts say that policy makers appear set to remain cautious about raising rates given that the rupiah currency IDR= is already supported by a hefty 6.75 percentage point interest rate premium over U.S. rates and on the view that the spike in inflation is one-off. (Writing by Muhamad Al Azhari, editing by Ed Davies)