No more 9-month KLIBOR referral by January

The central bank said yesterday the reserves position was sufficient to finance 7.3 months of retained imports and it was 1.2 times total short-term external debt.

KUALA LUMPUR: The nine-month Kuala Lumpur Interbank Offered Rate (KLIBOR) should not be used as a reference by market participants from Jan 1, 2017 for new contractual agreements, says Bank Negara Malaysia (BNM).

The central bank said on Thursday this was necessary as it is phasing out of the nine-month KLIBOR rate effective Jan 1, 2018. 

“This measure is decided after industry's feedback and taking into consideration the limited market demand, relevancy and sufficiency of transactional data to support the nine-month KLIBOR rate setting process,” it said.

To recap, the KLIBOR was introduced in June 1987 as an official indicator of the conditions in the interbank money market.

The rates that the KLIBOR contributors submit for KLIBOR setting indicate the rates that that they are willing to lend ringgit funds for the relevant tenors to interbank players and are mainly used as reference for other products such as the floating leg of interest rate swaps, options, futures and structured products.

Recently, BNM issued enhanced standards on the KLIBOR Rate Setting Policy Document which at incorporated steps to further strengthen the integrity of the KLIBOR reference rate. 

BNM said on Thursday these measures are being introduced following a review of the KLIBOR rate fixing process and cover broadly, in the areas of governance, oversight, accountability and transparency. 

These measures will align the Policy Document with international best practices under the Principles of Financial Benchmarks issued by the International Organization of Securities Commission (IOSCO Principles). 

BNM said it was working with the financial industry to ensure the smooth implementation of the KLIBOR rate setting framework. 

Further guidance, where appropriate, will be provided to market participants during this transition phase from the discontinued nine-month KLIBOR tenure to alternative mechanisms, the central bank said.

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