Indonesia to Fully Adopt IndONIA as Money Market Benchmark by January 2026

Indonesia Transitions to New Money Market Benchmark

Indonesia's central bank, Bank Indonesia (BI), will officially retire the Jakarta Interbank Offered Rate (JIBOR) and fully replace it with the Indonesian Overnight Index Average (IndONIA) as the primary money market benchmark on January 1, 2026. This significant reform is designed to improve transparency, deepen the domestic funding market, and align Indonesia's financial system with international best practices for interest rate benchmarks.

The final publication of all remaining JIBOR tenors is scheduled for December 31, 2025.

Reasons Behind the Shift

The transition from JIBOR to IndONIA addresses long-standing concerns regarding the reliability and potential for manipulation inherent in quotation-based benchmarks. JIBOR, similar to the now-discontinued London Interbank Offered Rate (LIBOR), relied on indicative rates submitted by a panel of banks, making it susceptible to manipulation. In contrast, IndONIA is a transaction-based benchmark, calculated from actual overnight rupiah interbank lending transactions reported by banks to Bank Indonesia. This methodology positions IndONIA as a 'near-risk-free rate' that more accurately reflects market conditions.

According to Benny Aroeman, Head of Markets at Citibank Indonesia, 'IndONIA is considered to better reflect interest rate movements in the market.' This shift is expected to support more effective monetary policy transmission and strengthen market credibility.

A Phased Transition Process

The move to IndONIA has been a gradual process, initiated by Bank Indonesia. The central bank began publishing IndONIA for overnight tenors on August 1, 2018. Subsequently, the overnight JIBOR was discontinued on January 2, 2019, with IndONIA taking its place for overnight transactions.

To facilitate the broader reform, the National Working Group on Benchmark Reform (NWGBR) was established on November 23, 2021. This group comprises key financial institutions including the Ministry of Finance, Bank Indonesia, the Financial Services Authority (OJK), and the Indonesia Foreign Exchange Market Committee. The NWGBR published guidelines in September 2022 to steer the transition.

Key milestones in the transition include:

• February 1, 2023: Publication of Compounded IndONIA for longer tenors (30, 90, 180, and 360 calendar days) by Bank Indonesia.
• 2024: Designated as an acceleration period for the reform.
• January 1, 2025: Recommendation for new financial contracts with overnight to 1-week tenors to adopt IndONIA.
• April 1, 2025: Recommendation for new financial contracts with 1-3 month tenors to adopt IndONIA.
• June 1, 2025: Recommendation for new financial contracts with 6-12 month tenors to adopt IndONIA.

For existing contracts referencing JIBOR, a fallback rate will be implemented, calculated using Compounded IndONIA plus a spread adjustment derived from historical data over the past five years.

Expected Market Impact

The full adoption of IndONIA is anticipated to have a positive impact on Indonesia's financial markets. It is expected to improve the transmission of monetary policy, particularly as Bank Indonesia aims to encourage lenders to pass through interest rate cuts to households and businesses to support economic growth. Projections indicate that Indonesia's money market transactions could increase significantly, rising from 54 trillion rupiah in October to 81 trillion rupiah (approximately US$4.8 billion) per day by 2030. This growth underscores the importance of a robust and transparent benchmark for the efficient functioning of the domestic funding market.