Jakarta. Indonesia's central bank is set to launch its new benchmark interest rate for the country's overnight interbank money market on Wednesday (01/08) as it pushes to boost the reliability of its reference rates.
The transaction-based rate, called "Indonia," will eventually replace the existing Jakarta Interbank Offered Rate (Jibor) that is based on quotations from bankers.
The launch, at 7.30 p.m. local time, comes in the wake of transaction-based overnight index averages in other countries such as Britain's Sonia and the eurozone's Eonia.
Commercial banks in Indonesia have rarely used Jibor as a reference for lending rates due to concerns about its reliability, while the lack of robust reference rates has also made it hard for companies to apply for interest rate swaps.
"At times, even when we raised our [main policy] rate, Jibor would go down. This was because their quotations were not set transparently and were not a reflection of true economic conditions," said Yoga Affandi, Bank Indonesia's head of financial market development.
"That's why with this [Indonia], we want to improve our interest rate policy transmission."
Indonia will be set based on the weighted average of rates charged in real transactions between Indonesia's 102 commercial banks.
Jibor will still be used as a reference rate for tenors of debt longer than overnight, but there will be stricter guidelines for contributing banks, Yoga said.
Bank Indonesia made the first step to fix the country's dysfunctional and often volatile short-term money markets by switching its main policy rate to the seven-day reverse repurchase rate from the 12-month reference rate in 2016.
The policy rate has been raised three times since mid-May as the central bank tries to defend the falling rupiah.