Bank Indonesia (BI) uses inflation targeting for monetary policy, with interest rates an effective tool for balancing growth and prices.

Policy and Short-term Interest Rate

The BI rate -- introduced in July 2005 following a period of sharp rate movements – is the target rate for Sertifikat Bank Indonesia (SBI). The 1-month BI rate for SBIs is the short-term benchmark. BI short-term notes are auctioned weekly, while 3-month SBI notes are auctioned monthly.

The Jakarta Interbank Offered Rate (JIBOR) -- the weighted average of quotes contributed by 18 bank members -- provides interbank IDR lending rates for overnight to 12-month short-term financing.

Reference Rates

Fasilitas Bank Indonesia (FASBI), a reference rate linked to the BI rate for risk-free overnight deposits, is used by banks for 1–14 day deposits with BI.

In June 2006, the overnight rate was set at the BI rate minus 5 percentage points, while the 1-week facility was set at the BI rate minus 2 percentage points.

Long-term Interest Rates

Long-term credits are unusual in Indonesia, with banks typically granting short-term credits rolled-over to extend payment periods with renegotiated interest rates.

Repurchase Agreement Rate

The Indonesian Government began a repo market in 2004 and launched a Master Repurchase Agreement (MRA) in 2005. The MRA is the benchmark for repo transactions, set at the BI rate plus 3 percentage points for overnight repos.