South Korea’s central bank and financial regulator Wednesday urged market players to actively use a newly introduced reference rate for their transactions.

In 2021, the country’s financial regulator unveiled its new risk-free reference rate, called the Korea Overnight Financing Repo Rate (KOFR), seeking to replace the decades-old short-term benchmark rate, the 91-day Certificate of Deposit (CD) rate, in line with a global trend.

But financial institutions are still widely adopting the CD rate as the benchmark rate for their transactions, such as interest rate swaps and lending rates.

The central bank, the financial regulator and financial institutions set up a new team to promote the use of the KOFR in March this year.

In a statement, the Bank of Korea and the Financial Service Commission (FSC) said they are aiming to shift toward the KOFR-based benchmark rate system, and urged market players to adopt the new reference rate for derivatives and spot trading.

“In line with a global trend, it is inevitable
to move toward the KOFR-centric paradigm, and we will speed up the implementation of a phased plan,” they said.

They said they plan to establish the technical foundation for the wider KOFR use and set targets of usage for different periods.

The BOK said the wider use of the KOFR will boost the benefits to customers and the effectiveness of the central bank’s monetary policy.

Source: Yonhap News Agency