What is INDONIA, and Why is it Replacing JIBOR? A Guide for Indonesian Investors

INDONIA is Indonesia's new benchmark interest rate that replaces the Jakarta Interbank Offered Rate (JIBOR) starting from 1 January 2026.

Why Indonesian Investors Should Care

Indonesian investors should care about INDONIA because it will affect various financial products they use, such as loans and bonds. The transition from JIBOR to INDONIA is part of a global effort to improve the integrity and reliability of benchmark interest rates following the LIBOR scandal. Understanding INDONIA is crucial for making informed investment decisions in the Indonesian market.

The change from JIBOR to INDONIA will impact the pricing of financial products. For instance, loans and bonds that previously used JIBOR as a reference rate will now be based on INDONIA. This change aims to provide a more accurate and robust benchmark that reflects the actual market conditions.

How INDONIA Works

INDONIA is calculated based on actual transactions in the overnight unsecured lending market. Here are the key steps in how INDONIA is determined:

1. Data Collection: Banks submit their overnight lending rates to the administrator.
2. Rate Calculation: The administrator calculates the INDONIA rate based on the submitted data.
3. Publication: The INDONIA rate is published daily.

Key Components

• Transaction-based: INDONIA is based on actual transactions, making it more robust.
• Overnight Rate: It reflects the cost of overnight borrowing between banks.
• Administrator: The rate is administered by a third-party entity to ensure integrity.

Real-World Example

Example: Consider a company that has a floating-rate loan with an interest rate of JIBOR + 2%. As of 1 January 2026, this loan will switch to INDONIA + 2%. If INDONIA is 4.5% on a given day, the company's interest rate for that day will be 6.5% (4.5% + 2%).

Impact on Your Investments

The shift from JIBOR to INDONIA may affect the returns on your investments. For example, if you hold bonds or other financial instruments that are tied to JIBOR, their interest payments will be adjusted to reflect INDONIA. Understanding this change is essential to managing your investment portfolio effectively.

Key Takeaways

• INDONIA is Indonesia's new benchmark interest rate replacing JIBOR.
• The transition aims to improve the integrity and reliability of benchmark rates.
• INDONIA is based on actual overnight lending transactions, making it more robust.

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