InfoQuest (September 2, 2020) -- The Bank of Thailand (BOT) announced the rescission of London Interbank Offered Rate (LIBOR) as a reference rate for global financial markets. Thailand has established its Thai Overnight Repurchase Rate (THOR) featuring transparency and credibility, based on actual lending rates generated by banks in private bond trading markets overnight.
Ms. Vachira Arromdee, Assistant Governor, Financial Markets Operation Group, said that CIMBT and KBANK concluded a derivatives contract on August 31, 2020, setting the THOR-based floating interest rate as the fixed interest rate (Overnight Indexed Swap), which saw the first THOR-related transaction in Thailand since THOR was released on April 1, 2020. Derivatives transaction between CIMBT and KBANK represents a critical inaugural step to show market liquidity and increasingly common transactions by referring to THOR. Such transaction is consistent with the BOT policy to upgrade Thailand's reference interest rate, and becomes one of the countermeasures to discontinued LIBOR in Thailand's financial market.
THOR transactions mushroomed in Thailand's financial market only in a few months, mainly contributed by THOR-based products and deals between banks and market participants, exhibiting the potential and sufficient preparation of those participants.
Mr. Thiti Tantikulanan, Division Head, Capital Markets Business Division, added that KBANK's contract signing supported the development of financial markets and strengthened market liquidity, to cope with the conversion of THOR into a reference interest rate for credit markets, bond markets and financial derivatives markets. This move followed BOT policy and revealed the professional KBANK as Thailand's head financial institution.
Financial Conduct Authority, the regulator of LIBOR, announced its discontinuation of LIBOR by the end of 2021. To reduce the impact, BOT and market participants have found a solution by adjusting the Fallback THBFIX to the Thai Baht Interest Rate Fixing (THBFIX) while establishing THOR.
Source: InfoQuest, by Rachada Kongkhunthian / Sasithorn, translated by Xinhua Silk Road
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