MANILA— The Philippine central bank announced on Wednesday the creation of an alternative reference rate that will be adopted by financial institutions as they work to end use of the tarnished London interbank offered rate (LIBOR).
The phasing out of LIBOR as a benchmark rate was first announced by the United Kingdom’s Financial Conduct Authority in July 2017. It will finally be scrapped on June 30, after banks in Britain and elsewhere were fined billions of dollars for trying to rig what was once dubbed the world’s most important number.
Philippine banks have transactions worth billions of pesos still tied to LIBOR, which will be replaced temporarily by the new reference rate until regulators and bankers set up a permanent benchmark rate by January 2024, central bank officials told a media briefing.
“Global markets need alternative means to price. This is the tentative solution,” Bangko Sentral ng Pilipinas Assistant Governor Johnny Noe Ravalo said.
The LIBOR rate, which had $265 trillion linked to it globally at the start of 2021, has been used as a reference rate for a vast array of financial products, including credit cards, corporate loans, mortgages, and derivatives.
—Reporting by Neil Jerome Morales; Editing by Kanupriya Kapoor