Bank Indonesia may suffer a deficit Rp 8.02 trillion this year

The central bank may suffer this year a much bigger deficit than last year due to a costly interest payout to holders of its key certificates.

"Bank Indonesia (BI) is expected to suffer a total deficit of Rp 8.02 trillion by the end of 2008, as it has to pay the interest of BI certificates amid the excess liquidity (at the banking system)," BI governor Boediono told a hearing at the House of Representatives commission XI overseeing financial affairs on Monday.

Last year, BI suffered a deficit of Rp 1.4 trillion.

Boediono said the central bank managed to post a surplus of Rp 2.22 trillion in the first quarter of this year, as a policy budget deficit of Rp 4.57 trillion was offset by an operating budget surplus of Rp 6.79 trillion.

"Despite the first-quarter surplus, tough economic times ahead imply a higher use of policy operations," he said.

Soaring inflationary pressures this year have pushed BI to raise its interest rate by 50 basis points to 8.5 percent. BI has hinted it would adjust its rate to inflation, which is estimated to further rise next month.

Inflation in May reached 10.38 percent from a year earlier due to the May 24 fuel price hike. Analysts predict on-year inflation to soar to more than 11 percent this month as the latent effects of the fuel price increase are yet to be felt.

Boediono said BI had cut its operating expenses this year to cope with the budget deficit, including by saving on energy and business travel costs.

Also on Monday, BI announced that foreign exchange reserves in the first quarter of this year stood at $59 billion due to a rise in exports. The foreign reserves stood at $57.46 billion in May.