Indonesia’s Interest Rate Reference Reform: Introducing IndONIA as the Replacement for JIBOR
Makarim & Taira S.
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Advisory - Issue 1, February 2024
In the global financial system, interest rate references or 'benchmark rates’, play a significant role in determining interest rates for financial contracts and guiding monetary policy decisions. The Interbank Offered Rate (“IBOR”) has long been a widely accepted global benchmark – calculated from daily submissions by major banks. One of the well-known forms of IBOR was the London Interbank Offered Rate (“LIBOR”), administered by the Intercontinental Exchange, a prominent global operator of financial exchanges and clearing houses. LIBOR served as a key global benchmark for decades until LIBOR ceased publication as of 30 June 2023. This led to financial institutions and regulators in several countries opting for alternative reference rates based on their currencies, such as the United States recommending Secured Overnight Financing Rate (“SOFR”) to replace USD LIBOR.
Following this transition, Indonesia’s main interest rate reference for Rupiah-denominated loans, the Jakarta Interbank Offered Rate (“JIBOR”), is also planned to be fully discontinued in 2025. This change will result in the complete adoption of the Indonesia Overnight Index Average (“IndONIA”) as Indonesia’s interest reference rate for both non-overnight and long-term tenors. This year, 2024, is designated as an acceleration period for this reform. In light of these global shifts and the imminent replacement of JIBOR, this Advisory outlines the importance of having IndONIA as Indonesia’s interest rate reference, highlights key changes, and provides general guidance for preparing financing agreements in line with this shift.
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