THE Bangko Sentral ng Pilipinas (BSP) and the banking industry have agreed to create an overnight (ON) rate to guide transactions on the back of the cessation of London Interbank Offered Rate (Libor) by June 30.
In a briefing on Thursday, BSP Governor Felipe M. Medalla said the 28-day BSP bill rate will be used as the ON rate that can be used for various financial transactions.
However, after six months, the 28-day BSP bill rate will be replaced by the average rate based on the 6-month yield curve of trades for various tenors of market securities.
“Making changes to the current benchmark or introducing a new yield curve will require time and the full cooperation of all the stakeholders. While there are several tasks that need to be undertaken, it was agreed at the end of the town hall discussion that the start of January 2024 will be our ‘fighting target’ to have a credible yield curve in place,” Medalla said.
The BSP said it discussed with market stakeholders the “urgency of having a credible yield curve” given that key macro-financial decisions are based on a credible benchmark.
“We believe that a credible yield curve must arise from active trading of marketable securities, provide yields for various tenors, make these yields usable to all parties, and can be replicated as needed,” Medalla explained.
Libor is an interest rate benchmark used in a wide range of financial transactions globally. The transition away from Libor was initially announced in 2017.
This transition reached a crucial stage with the March 2021 announcement by the United Kingdom’s Financial Conduct Authority of the formal timeline for the discontinuation of the benchmark.
In 2021, the Department of Finance (DOF) said it was bracing for the possibility that the interest rate market may become unstable due to the cessation of Libor. (https://ift.tt/6HgvSxB)
Finance Undersecretary Mark Dennis Y. C. Joven, who heads the DOF’s International Finance Group, said this prompted them to frontload Official Development Assistance (ODA) from multilateral lenders.
To minimize the overall financing cost and to lengthen the tenor of the government’s portfolio, Joven said they prioritized going to multilateral ODAs, followed by bilateral ODA, and then commercial borrowing.
See BusinessMirror’s earlier Explainer article in Broader Look section on the implications of the Libor phaseout: https://ift.tt/YyelDj8.
Image credits: Arden Paolo Alberto | Dreamstime.com
PHL creates overnight rate as Libor era ends
Source: News Paper Radio
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