BOK to Accelerate Shift from CD Rate to KOFR... Roadmap to Be Announced in First Half

Bank of Korea Releases Monetary and Credit Policy Report
KOFR Transactions Surge 167-Fold in First Year Since Introduction

One year after the Bank of Korea and the Financial Services Commission launched their roadmap to boost Korea’s risk-free benchmark rate, known as KOFR (Korea Overnight Financing Repo Rate), transactions of KOFR-based Overnight Index Swaps (OIS) have surged by approximately 167 times. In order to accelerate the transition of Korea’s benchmark interest rate system from the existing Certificate of Deposit (CD) rate to KOFR, the authorities plan to announce a new roadmap in the first half of this year, with the main focus on removing the CD rate from the list of key benchmark rates.

On March 12, the Bank of Korea stated these findings in its Monetary and Credit Policy Report through an analysis titled “Current Status of KOFR Activation and Expected Effects.”

KOFR is a benchmark rate calculated based on the most actively traded ultra-short-term rates, such as call rates and repurchase agreement (RP) rates. It was newly introduced after the 2012 LIBOR (London Interbank Offered Rate) manipulation incident, which highlighted problems with quote-based rate-setting mechanisms that previously played a central role in global financial transactions.

To establish KOFR as the reference rate for financial transactions in Korea, the Bank of Korea and the Financial Services Commission organized a public-private working group in March 2024, including government, related agencies, and market participants. That August, they announced and implemented a three-stage “KOFR Activation Roadmap,” which focuses on: ▲ establishing the technical infrastructure for KOFR expansion ▲ increasing market share through expansion strategies ▲ and removing CD yield from the list of key benchmarks to complete the reform of the benchmark rate system.

As a result, the Bank of Korea assessed that KOFR-linked transactions have grown significantly, and the number of participating institutions has expanded. The volume of KOFR-based OIS transactions reached 153.4 trillion won last year, a roughly 167-fold increase from the previous year’s 900 billion won. The number of participating institutions, including both banks and non-bank entities, grew to 29. During the same period, KOFR-linked Floating Rate Note (FRN) issuance amounted to 6.1 trillion won, about seven times higher than the previous year. Banks issued 17.4% of their annual FRN funding volume linked to KOFR, surpassing the target of 10%.

The Bank of Korea and the Financial Services Commission plan to announce the “Roadmap for Removing CD Yield from Key Benchmarks” within the first half of this year to complete the benchmark rate reform. Lee Seungyeop, Deputy Head of the Money Market Team at the Bank of Korea’s Financial Markets Department, stated, “Once KOFR is firmly established as the benchmark rate, it will help enhance market trust by aligning with international standards, improve benefits for financial consumers, and strengthen the effectiveness of monetary policy.”

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