CD rates may be replaced with Cofix standardKorea plans to announce a new money market rate as early as next month to replace rates on certificate of deposit (CD), which have been under a spotlight due to banks’ alleged rate fixing, industry sources said yesterday.
The move follows the country’s antitrust watchdog launching an investigation into major local banks and brokerage houses over their suspected involvement in rigging rates on the 91-day CDs, the benchmark for bank lending rates.
Financial authorities are mulling plans to replace CD rates with rates on three-month Cost of Funds Index (Cofix) as a new key money market rate, according to industry sources.
A task force, including the financial watchdog and the Ministry of Strategy and Finance, plans to announce the decision as early as next month.
A CD is a financial instrument sold by banks and circulated in secondary markets by securities firms. Most bank mortgage loans are tied to CD rates, raising chances that higher CD rates might contribute to increased debt-repaying burdens for households.
Cofix, currently used as another benchmark for bank lending rates, is calculated by averaging interests paid on capital funding by nine major lenders. Rates on Cofix, whose maturity stands at nine months on average, are made public every month.
The task force is planning to set the maturity of Cofix rates to three months to reflect market situations and the new benchmark rate may be announced every week, sources added. If introduced, banks’ lending rates may fall by 0.1 percentage point on average. Yonhap
More in Finance
Short selling divides punters big and small
Stocks dip more than 2 percent as investors book profits from recent rally
BOK head expresses concerns over rapid growth of local stock market
BOK keeps base interest rate at record low of 0.5%
Gov't-backed loans offered to all small shops from Jan. 18