Bank Indonesia Introduces BI-FRN to Enhance Financial Market

Development of Overnight Index Swap Market

Bank Indonesia (BI) is set to issue Bank Indonesia Floating Rate Notes (BI-FRN) on November 17, 2025. This new financial instrument is designed to develop the overnight index swap (OIS) market, which is currently underdeveloped in Indonesia. The OIS market plays a crucial role in providing a benchmark for various financial instruments and hedging against interest rate risks.

Features of BI-FRN

The BI-FRN will have several key features:

• Floating interest rate based on Compounded INDONIA
• Flexible tenors ranging from 1 to 12 months
• Tradable in the secondary market
• Can be repoed (repurchase agreement)
• Available for non-bank entities through sub-registry
• Delivery-versus-payment settlement in BI-SSSS/RTGS system
• Secondary market price publication by PHEI

Rationale Behind BI-FRN

The introduction of BI-FRN is part of BI's efforts to reform domestic benchmark interest rates, shifting from a quotation-based system to a transaction-based system. This move aligns with the Blueprint for Money Market Development 2030. The development of the OIS market is expected to create a more representative interest rate curve and enhance the efficiency of monetary policy transmission.

Market Impact

The average daily transaction in the money market has grown significantly since the implementation of Operation Market Rate-Oriented (OMRO) in May 2024, reaching Rp54.4 trillion. However, the OIS market remains underdeveloped, with daily transactions averaging only around Rp60 billion. The introduction of BI-FRN is expected to catalyze the growth of the OIS market, creating a more liquid and efficient financial ecosystem.

Expert Opinion

Josua Pardede, Chief Economist at PT Bank Permata Tbk (BNLI), believes that the BI-FRN will be a crucial catalyst in the reform of domestic benchmark interest rates. He expects that the combination of BI-FRN and the OIS matchmaking mechanism will create a more liquid ecosystem, improve price discovery, and accelerate the formation of a market-based yield curve.