Bank of Canada announces creation of working group to develop new term risk-free interest rate benchmark
The Bank of Canada today announced the creation of the Canadian Alternative Reference Rate Working Group (CARR), sponsored by the Canadian Fixed-Income Forum (CFIF), to identify and seek to develop a new term risk-free Canadian dollar interest rate benchmark. This initiative is in line with work under way in other jurisdictions to develop new, robust, risk-free or nearly risk-free reference rates.
Interest rate benchmarks are a cornerstone of the global financial system and are used by market participants across a wide range of financial products and contracts. Having risk-free or nearly risk-free reference rates to serve as possible alternatives to existing interest rate benchmarks that incorporate a measure of bank credit risk was one of the recommendations put forward in 2014 by the Financial Stability Board’s Official Sector Steering Group (OSSG).
CARR’s main objective is to identify and seek to develop a Canadian dollar term risk-free rate benchmark that is robust, reliable and resilient to any market stress, as well as consistent with international regulatory standards. Such a term risk-free rate would operate alongside the existing Canadian Dollar Offered Rate (CDOR).
The work will also explore possible enhancements to the existing Canadian overnight risk-free rate, the Canadian Overnight Repo Rate Average (CORRA), specifically considering options to broaden the volume of trades that are used to calculate the rate.
The working group will be co-chaired by a senior representative of the Bank of Canada and a member of CFIF. Membership will consist of experienced individuals from the Canadian financial industry who have an excellent understanding of the various issues related to these types of financial benchmarks.
To maximize transparency and achieve broad consensus on the working group’s proposals, feedback will be sought from a wide range of stakeholders through targeted industry round tables and the publication of consultation papers.
Information on the working group’s activities including its terms of reference, membership, meeting dates, agendas and summaries will be available on the CARR website.
Market participants interested in contributing to these efforts are invited to email CARR-WG@bankofcanada.ca with their contact details.
For further information, please contact:
Financial Markets Department
Bank of Canada
Bank of Canada