Follow Global Reform, BI Reveals Reasons for Replacing JIBOR to INDONIA

Director of the BI Financial Market Development Department Arief Rachman. (Aris Nurjani/VOI)

JAKARTA - Bank Indonesia (BI) officially stopped publishing the Jakarta Interbank Offered Rate (JIBOR) starting January 1, 2026 and as a replacement, the national financial market now uses the Indonesia Overnight Index Average (INDONIA), which is the rupiah reference interest rate which is compiled based on actual interbank borrowing and lending transactions.

BI Director of Financial Market Development Arief Rachman explained that INDONIA was considered more precise, objective, and able to reflect the actual liquidity conditions of the market.

According to him, the implementation of INDONIA is also part of the reform of the reference interest rate which follows international best practices to deepen and strengthen the Indonesian financial market.

According to Arief, INDONIA offers a higher level of transparency and credibility so that it is worth being a reference by market participants.

"So what we are doing in Indonesia, when we stop JIBOR, introduce INDONIA, this is part of the global benchmark reform in the world. So it's not BI's cleverness, but this is a reform in the global financial market," said Arief in a Medi Briefing, Wednesday, January 7.

He explained that before JIBOR was used, the global financial market knew the London Interbank Offered Rate (LIBOR) as a reference interest rate that had characteristics similar to JIBOR and for years has been the main reference for the world's financial industry, especially for short-term loans between financial institutions with tenors ranging from one day to one year.

Arief added that in its development, LIBOR, which is determined based on the quotes of contributing banks, has proven to be vulnerable to manipulation.

"In 2012 it was revealed that there was indeed a fraud, a fraud related to LIBOR. How is the fraud? Because by its nature this is a rate based on the overtrade offered, so they can change," he explained.

He explained that the UK Financial Services Authority, the Financial Conduct Authority (FCA), responded by replacing the LIBOR manager from the British Bankers Association (BBA) to the Intercontinental Exchange Benchmark Administration (IBA) in 2014.

However, Arief said that these efforts have not fully restored market confidence and that FCA eventually decided that the bank-panel was no longer required to support LIBOR after December 31, 2021.

"Several countries have also started to introduce, other countries have started to introduce LIBOR substitutes. In comparison with other countries, we are relatively not too far ahead, not too far behind. We are in the fourth position," he said.

In response to this weakness, Arief added that BI introduced INDONIA, which is an interest rate index derived from rupiah borrowing-lending transactions without collateral between banks for overnight tenor.

According to him, all transactions are reported by banks to BI, so that the interest rate formed really reflects the market mechanism.

Meanwhile, INDONIA is calculated using the weighted average method based on the nominal value of transactions (volume-weighted average) of all transactions that occur on the current day and transaction data is reported through the daily reporting system of commercial banks within the time range of 07.00 to 18.00 WIB, with online correction facilities until 19.00 WIB.

Arief said that this benchmark interest rate reform has been prepared by BI for several years to ensure a smooth transition from JIBOR to INDONIA.

The operational publication of INDONIA has been started since August 1, 2018 and runs parallel to JIBOR until the end of JIBOR is officially announced on September 27, 2024.

In addition, this transition process is also equipped with a Transition Guide for the Termination of JIBOR which was compiled by the National Working Group on Benchmark Reform (NWGBR).

On the other hand, market participants have gradually switched to using INDONIA and Based on a survey by the Financial Services Authority (OJK), the value of financial contracts that mature before December 31, 2025 and still use JIBOR as a reference has recorded a significant decline of 67.7 percent, from Rp. 140.37 trillion in September 2024 to Rp. 45.28 trillion in September 2025.

Meanwhile, the value of contracts that have a fallback rate, namely the replacement interest rate agreed upon if JIBOR is discontinued for contracts that mature after December 31, 2025, has actually increased by 35.9 percent, from Rp. 164.48 trillion to Rp. 223.76 trillion in the same period.

In line with increasing transparency, the performance of the Interbank Money Market (PUAB) also shows a positive trend, namely until December 19, 2025, the average interbank borrowing-lending transaction in rupiah reached around IDR 15.4 trillion per day, or equivalent to 63.5 percent of the total money market transaction.