BI pays high price for SBI interests, leading to budget deficit

Bank Indonesia (BI) has been forced to pay high interest on Bank Indonesia Certificates (SBI) due to high inflation, leading to the bank's budget deficit.

BI's acting governor Darmin Nasution said Monday that the central bank would likely suffer a Rp 1.91 trillion (US$201 million) deficit by the end of this year.

"The deficit is due to the high monetary expense this year. One component causing the high expense is the high SBI interest rate," he told the members of House of Representative's Commission XI during a hearing.

Darmin predicted that BI would disburse up to Rp 18.34 trillion this year, higher than Rp 16.43 trillion of income expected by the end of 2009.

BI was obliged to pay high interest due to the high inflation rate set at 2.57 percent compared to last year, Darmin said. "We can't set SBI interest rate too close to inflation rate because investors could be reluctant to buy SBI," he said.

Therefore, Darmin went on, the government had to take all necessary measures to calm inflation before the bank could set lower a SBI interest rate.

"We are obliged set a SBI interest rate in line with BI rate," he said.

The BI rate is now set at about 6.5 percent. (bbs)