Lee Changyong: "We Must Accelerate KOFR Adoption Ahead of WGBI Inclusion"...Kwon Daeyoung: "Promoting Introduction to Loan Reference Rates"

Bank of Korea and Korea Financial Research Institute Hold Joint Conference

Lee Changyong, Governor of the Bank of Korea, emphasized the need to accelerate efforts so that the Korea Overnight Financing Rate (KOFR), the domestic risk-free reference rate, can become the standard rate in Korea's financial markets ahead of the country's inclusion in the World Government Bond Index (WGBI) in April next year.

Lee Changyong, Governor of the Bank of Korea, is delivering the opening speech at the "Bank of Korea-Korea Institute of Finance Joint Conference" held at the Bank of Korea in Jung-gu, Seoul on November 4, 2025. Photo by Kang Jinhyung

Governor Lee made these remarks in his opening speech at the conference titled "Policy Tasks for the Development of the Short-Term Money Market and Promotion of KOFR," co-hosted by the Bank of Korea and the Korea Financial Research Institute on November 4.

He stated, "We expect that the inclusion in the WGBI next year will bring a large inflow of capital into Korea. For these expectations to be realized, the infrastructure of our financial markets must become more internationalized and advanced."

He continued, "I believe that the foundation necessary for KOFR transactions has been sufficiently established. The remaining challenges are speed and trust. We must accelerate the strategy to promote KOFR, and provide a clearer policy timeline and concrete implementation plan for the transition to the new reference rate, such as lifting the designation of CD yields as a key benchmark, so that market participants can trade with confidence."

He added, "I hope that KOFR will successfully become the benchmark rate for our financial markets. As the opportunity for a new leap in our capital markets approaches with the large-scale inflow of foreign investment in government bonds, we must move quickly to present a proactive direction for the development of the reference rate system, thereby enhancing investment incentives and further increasing the credibility of our financial markets."

Regarding another topic of the conference, the short-term money market, Governor Lee said, "Over the past decade, the repurchase agreement (RP) market has grown rapidly, enabling the calculation of reliable risk-free rates that meet international standards. However, as leverage through the RP market has expanded, potential risks have also increased, so it is necessary to take a sober look at the current state of the market."

On the growing influence of non-bank financial institutions in the short-term money market, he said, "While this has the positive effect of promoting competition within the financial market, the increasing diversity of market participants and the more complex responses to economic shocks are making policy responses more challenging. Central banks in other countries are also considering ways to reflect changes resulting from the growth of the non-bank sector when designing policies, and I believe it is time for us to discuss this as well."

Lee Changyong, Governor of the Bank of Korea (left), and Kwon Daeyoung, Vice Chairman of the Financial Services Commission, are attending the "Bank of Korea-Korea Financial Research Institute Joint Conference" held at the Bank of Korea in Jung-gu, Seoul on November 4th, 2025, exchanging opinions. Photo by Kang Jinhyung

Kwon Daeyoung, Vice Chairman of the Financial Services Commission, who delivered a congratulatory address at the event, responded by saying that detailed plans for reference rate reform will be prepared in the first half of next year to ensure that KOFR spreads rapidly in domestic financial transactions.

Vice Chairman Kwon stated, "We will set ambitious utilization targets for the derivatives and bond markets, where KOFR is already spreading rapidly, and accelerate its adoption by strengthening institutional incentives for market participants. We will also consider a phased introduction plan so that KOFR can be used in the loan market."

He continued, "Since the loan reference rate applied to loan products is directly related to the repayment burden of financial consumers, we will carefully devise an introduction plan that prioritizes the interests of financial consumers and market stability. We also plan to swiftly complete the reform work to replace the CD rate with another reference rate that has higher market credibility."

Vice Chairman Kwon particularly pointed out, "The quote-based CD rate carries risks similar to LIBOR, which became problematic during the manipulation scandal in 2012. Market participants need to gradually reduce their reliance on its use."

Quoting Chuck Prince, former CEO of Citigroup, who said, "As long as the music is playing, you've got to get up and dance," he added, "When the music actually stopped, what remained in the market were massive aftereffects and deep scars. Ultimately, it is up to market participants to stop the 'dance' of routinely using risky reference rates."

This content was produced with the assistance of AI translation services.