Indonesia Set To Revamp Benchmark Rates For Money Market

Summary:

Indonesia is set to phase out a key money-market benchmark this week, concluding a years-long transition to align with global standards.

Bank Indonesia will retire the Jakarta Interbank Offered Rate and fully replace it with the Indonesia Overnight Index Average, known as Indonia, on Jan. 1, as it aims to improve transparency and deepen the domestic funding market. Local institutions have been using the alternative reference rate as part of the transition process since August 2018.

The shift comes at a timely moment, as Bank Indonesia pushes for lenders to pass through aggressive interest-rate cuts to households and businesses to support growth. It also brings the Southeast Asian country in line with a global move toward transaction-based benchmarks.

Institutions use Jibor to determine interest rates for bank deposits, swaps and consumer loans, among other things. Bank Indonesia has introduced compounded Indonia to match the tenors offered by Jibor and overnight index swap as a hedging instrument after the old benchmark is retired.

"Indonia is considered to better reflect interest rate movements in the market," said Benny Aroeman, head of markets at Citibank Indonesia. "This supports more effective monetary policy transmission because the benchmark used is in line with the conditions and dynamics of the money market."

Earlier this month, BI Governor Perry Warjiyo said credit demand remained weak amid persistently high borrowing costs. While the central bank has lowered the benchmark interest rate by 125 basis points so far this year, lending rates have only fallen 24 basis points.

With Indonesia's money market transactions set to rise to 81 trillion rupiah ($4.8 billion) per day by 2030, according to Warjiyo, from 54 trillion rupiah in October, a more market-driven benchmark will be key for transmission of lower interest rates.

The transition is an important step in making the money and foreign exchange markets work more efficiently and ensure they are more modern and internationally-standardized, said Agustina Dharmayanti, BI's executive director of financial market development.

Authorities around the world are moving from interbank offered rates toward benchmarks based on real transactions to improve transparency and reliability. Jibor, for instance, is determined by quotations from 17 contributing banks, while Indonia is based on all transactions that occurred in the overnight interbank money market. Average daily interbank transactions reached 15.4 trillion rupiah — or around 63.5% of total money market transactions — throughout 2025, according to the central bank.

Others in Southeast Asia have also introduced alternative market reference rates. Thailand proposed its overnight repurchase rate in 2020 before phasing out the Thai Baht Interest Rate Fixing in 2023, while Malaysia unveiled its overnight rate in 2021 with plans to stop its Kuala Lumpur Interbank Offered Rate in 2029.

While some customers still have a preference for the forward-looking reference interest rates, "the transition process is going well," said Wiwig Santoso, head of treasury at PT Bank SMBC Indonesia. "So far, only a few clients are still in the process of finalizing the addition of a fallback clause to their current contracts."

Source: Bloomberg Europe

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