S. Korea plans to shift from CD rates to KOFR as benchmark

South Korea is set to introduce new guidelines to encourage the adoption of the Korea Overnight Financing Repo (KOFR) rate as a benchmark for interest rate swaps, replacing the currently dominant Certificate of Deposit (CD) rates.

The Bank of Korea (BOK) and the Financial Services Commission (FSC) are collaborating on this initiative to address concerns about the volatility of CD rates and align with the global trend of shifting away from Libor (basic rate of interest used in lending between banks).

South Korea’s interest rate swap market, valued at $4.3 trillion, heavily relies on CD rates for pricing. The transition to KOFR aims to enhance market stability and transparency.

The shift to KOFR is anticipated to have implications for various financial instruments and market participants, requiring adjustments in pricing models and risk management strategies.

Attribution: Reuters

Subediting: M. S. Salama