OCR to remain NZ’s benchmark interest rate

by Ksenia Stepanova28 Jan 2020

The Reserve Bank of New Zealand (RBNZ) will support the Official Cash Rate (OCR) as New Zealand’s fall-back benchmark interest rate in spite of international reforms, the assistant governor stated today.

Assistant governor/GM economics, financial markets and banking Christian Hawkesby noted that a number of changes have been made to strengthen the New Zealand benchmark interest rate (BKBM)’s “robustness and reliability” despite it not facing the same issues as LIBOR, which has been subject to manipulation by overseas financial institutions.

“Global interest rate benchmarks, such as LIBOR, play a substantial role in the valuation of financial derivatives and contracts,” Hawkesby said.

“Reforms are underway internationally to improve the integrity of these benchmarks, following manipulation by several financial institutions overseas.”

The New Zealand Financial Markets Association (NZFMA) has chosen the OCR as the risk-free fall-back benchmark interest rate for BKBM, and Hawkesby says this decision is supported by the Reserve Bank.

He stated that the International Swaps and Derivatives Association (ISDA) will also be updating its 2006 fall-back provisions, and encouraged market participants to adopt those in any contracts that reference BKBM.

NZFMA CEO Paul Atmore says his organisation will also operate dual interest rate benchmarks, and will retain BKBM while also developing risk-free rates (RFRs).

“The NZFMA believes BKBM will continue as an important financial benchmark, whilst the use of RFRs will increase in line with international developments,” Atmore stated.

Internationally, it is expected that LIBOR will no longer be calculated and published beyond 2021. The Reserve Bank has advised those with contracts referencing LIBOR to transition to alternative benchmark rates.

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