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Indonesia central bank revises rules on Jakarta interbank rate

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Indonesia's central bank on Tuesday revised rules on how the Jakarta Interbank Offered Rate (JIBOR) is set in a bid to increase use of it as a benchmark.

[JAKARTA] Indonesia's central bank on Tuesday revised rules on how the Jakarta Interbank Offered Rate (JIBOR) is set in a bid to increase use of it as a benchmark.

The government and Bank Indonesia (BI) have been trying to deepen the country's financial market as part of efforts to reduce volatility of the rupiah. The rupiah has been the second worst performing currency in emerging Asia this year, weakening about 5.4 per cent against the dollar.

Until now, JIBOR quotes with a tenure longer than one month have been unreliable because some banks have submitted offered rates not reflecting real market conditions, Nanang Hendarsyah, deputy head of the central bank's Task Force for Financial Deepening, said. "Previously, the rate was not used for any transaction. That's why banks can give whatever input they want," Hendarsyah said.

In a new regulation effective from Wednesday, BI told banks that it will set JIBOR based on their indicative offered and bid rates for unsecured loan transaction every morning. Within 10 minutes of BI's announcement of a day's rates, banks should use it for transactions of up to 10 billion rupiah (S$1.05 million).

Mr Hendarsyah said "Now the rate will be used in real transactions, so banks should submit real rates and it should show the market's condition." The central bank also cut the number of banks that would contribute for JIBOR to 21 from 30.

One of the changes is that there will be no more setting of a JIBOR rate for dollars, only for interbank loans in rupiah.

BI senior deputy governor Mirza Adityaswara said the purpose of the regulation is to make JIBOR a real benchmark. "We want it to be used as a reference for pricing in derivatives market, JIBOR plus several basis points," he said.

Branko Windoe of the Indonesia Foreign Exchange Market Committee, who is also head of treasury at PT Bank Central Asia, said market players support the revision, which would be good for developing the money market.

Reuters