Indonesia's financial landscape is undergoing a significant transformation as the country officially retires a long-standing key money-market benchmark. This move concludes a multi-year transition designed to bring its financial systems in line with international norms and enhance market transparency.
A New Benchmark for a Modern Market
Bank Indonesia (BI), the nation's central bank, will decommission the Jakarta Interbank Offered Rate (Jibor) on January 1. It will be fully replaced by the Indonesia Overnight Index Average, widely known as Indonia. The primary goals of this shift are to improve transparency within the financial system and to deepen the domestic funding market. Financial institutions in Indonesia have been preparing for this change since August 2018, gradually integrating the alternative Indonia rate into their operations.
This transition arrives at a crucial juncture. Bank Indonesia is actively encouraging lenders to pass on its aggressive interest-rate cuts to both households and businesses to stimulate economic growth. A more accurate and reliable benchmark is seen as vital for this monetary policy transmission. Furthermore, this step aligns Indonesia with a worldwide movement away from estimated interbank offered rates and towards benchmarks grounded in actual transaction data.
Why Indonia Represents an Improvement
For years, institutions used Jibor to set interest rates for various products, including bank deposits, swaps, and consumer loans. The critical difference between the old and new systems lies in their foundations. Jibor was determined based on quotations submitted by 17 designated banks. In contrast, Indonia is calculated using all transactions that occur in the overnight interbank money market, making it a more factual and market-driven indicator.
"Indonia is considered to better reflect interest rate movements in the market," explained 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." To ensure a smooth transition, BI has introduced compounded versions of Indonia to match the various loan tenors previously offered under Jibor, along with an overnight index swap for hedging purposes.
Broader Implications and Regional Context
The urgency for an effective benchmark is underscored by current economic conditions. Earlier in December, BI Governor Perry Warjiyo noted that credit demand remains weak despite high borrowing costs. A striking gap exists: while the central bank has cut its benchmark rate by 125 basis points this year, lending rates have only fallen by 24 basis points. With Indonesia's daily money market transactions projected to surge to 81 trillion rupiah by 2030 from 54 trillion rupiah in October, a robust market-driven benchmark is essential for transmitting lower rates effectively.
Agustina Dharmayanti, BI’s executive director of financial market development, stated that this transition is a key step in making the money and foreign exchange markets more efficient, modern, and internationally standardized. Indonesia is not alone in this reform. Other Southeast Asian nations have embarked on similar journeys. Thailand introduced its overnight repurchase rate in 2020 and phased out its old benchmark in 2023, while Malaysia launched its own overnight rate in 2021 with plans to retire its Kuala Lumpur Interbank Offered Rate by 2029.
The transition appears to be progressing smoothly. Wiwig Santoso, head of treasury at PT Bank SMBC Indonesia, acknowledged that while some clients still prefer forward-looking rates, the process is going well. He noted that only a few clients are finalizing the addition of fallback clauses to their existing contracts. This systemic overhaul, rooted in real transaction data averaging 15.4 trillion rupiah daily in the interbank market throughout 2025, positions Indonesia for a more transparent and resilient financial future.
