The central bank estimates it may suffer a Rp 1.91 trillion (US$203.4 million) deficit by the end of the year, in part because of the high interest it has had to pay the banks placing their funds in Bank Indonesia Certificates (SBIs).
Bank Indonesia senior deputy governor and acting governor Darmin Nasution acknowledged Monday that the SBI interest was part of the high cost of monetary policy this year, leading to an imbalance between BI income and spending.
"The SBIs, indeed, have been causing us to disburse a lot of money, *and* we are not happy with that," he told the members of House of Representative's Commission XI during a hearing.
The central bank has estimated it will spend up to Rp 18.34 trillion this year in relation to its monetary operations, Rp 1.91 trillion higher than the Rp 16.43 trillion of income it is predicted to collect from them.
BI's data shows, as of August, as much as Rp 193.2 trillion of funds, including $1.58 billion from international institutions, placed in SBIs, more than twice the Rp 84.53 trillion in August last year, an increase of 128.5 percent.
While lending to the real sector may still be considered high risk amid the prolonged impacts of the global economic downturn, many banks have preferred purchasing safer SBIs from the central bank despite declining interest rates.
Data from the central bank showed that, as of November, national lending only grew 7 percent compared to the same period in 2008, less than half the national target of 15 percent this year.
By comparison, bank lending expanded by 30 percent last year, supporting the economy to grow by 6.1 percent. This year, the economy is predicted to grow by 4.3 percent.
Commenting on this, Darmin said it was not entirely BI's fault that many banks have been reluctant to accelerate expansion as this relates to risks derived largely from the current state of the country's economy.
Darmin said that SBIs were supposed to help stabilize liquidity.
"That is one of the SBI's functions. We must control the amount of money circulating to help maintain low inflation," he said.
He said that the high amount of money in circulation was due to slow economic progress causing banks to spend less on lending. "How come? Ask the *officials in charge of* the economy, not me," Darmin said.
State and private banks have actually tried to set lower lending rates to ease borrowing costs, and to increase lending to the real sector in order to spur economic growth.
The nation's largest lender, Bank Mandiri for example, just cut lending rates by 50 basis points in November, making for total rate cuts of 2.25 percent so far this year.
Mandiri first cut lending rates this year by 50 basis points in January, then 25 basis points in April, 50 basis points in June, and 50 basis points in August.
According to data from BI, lending rates during the third quarter of 2009 decreased by 18 basis points on average, compared to the previous quarter. (bbs)
