Bank of Korea and Korea Institute of Finance Hold Joint Conference
One year after the financial authorities and the Bank of Korea launched a roadmap to promote the Korea Overnight Financing Repo Rate (KOFR), the domestic risk-free benchmark rate, the volume of interest rate swap (OIS) transactions based on KOFR has increased by approximately 70 times. The authorities plan to accelerate benchmark rate reform by introducing KOFR-based loan products and removing the Certificate of Deposit (CD) rate from the list of key benchmarks, aiming to firmly establish KOFR as the reference rate for domestic financial transactions.
Lee Changyong, Governor of the Bank of Korea (third from left), is attending the "Bank of Korea-Korea Institute of Finance Joint Conference" held at the Bank of Korea in Jung-gu, Seoul on November 4, 2025. Photo by Kang Jinhyung
On November 4, the Bank of Korea and the Korea Institute of Finance held a joint conference titled "Policy Tasks for the Development of the Short-Term Money Market and Activation of KOFR" at the Bank of Korea annex in Jung-gu, Seoul, where they announced these initiatives.
KOFR is a benchmark rate calculated based on the most actively traded ultra-short-term interest rates, such as call rates and repurchase agreement (RP) rates. Because it is derived from rates applied to actual transactions, it is difficult to manipulate and typically remains at a level very close to the policy rate. KOFR was introduced in response to the problems with quote-based rate-setting systems, which came to light after the LIBOR rate-fixing scandal in 2012, which had served as a global benchmark for financial transactions.
The Bank of Korea and the financial authorities are actively encouraging the use of KOFR as a policy measure to replace the CD rate, which is still widely used as a key benchmark in the market. Last year, a public-private working group was launched with the participation of the government, relevant institutions, and market participants, and institutional and technological foundations were established. Since July this year, administrative guidance has been implemented to ensure that at least 10% of new transactions in the interest rate swap market are based on KOFR. To reduce the risk management burden on financial institutions, KOFR-OIS central clearing services began on October 27.
As a result, as of September, the volume of KOFR-based OIS transactions reached nearly 30 trillion won, representing an approximately 70-fold increase compared to a year earlier. Issuance of KOFR-based floating rate notes (FRNs) also tripled. Han Min, head of the Bank of Korea's money market team, who delivered the keynote presentation, stated, "The technical and institutional foundations necessary for transactions have largely been established."
Going forward, the financial authorities and the Bank of Korea plan to develop detailed measures and implement them swiftly to ensure that KOFR is firmly established as the reference rate for domestic financial transactions. Kwon Daeyoung, Vice Chairman of the Financial Services Commission, announced in his congratulatory remarks that detailed plans for benchmark rate reform will be developed by the first half of next year.
Initially, the current 10% share of KOFR-OIS transactions is expected to increase gradually. At the conference, the Bank of Korea proposed maintaining the current 10% share until June 2026, then gradually increasing it to 30% by June 2027, and eventually expanding it to 50%. There was also a proposal to make KOFR the default choice for new interest rate swap transactions.
Lee Changyong, Governor of the Bank of Korea, is delivering the opening speech at the "Bank of Korea-Korea Financial Research Institute Joint Conference" held at the Bank of Korea in Jung-gu, Seoul on November 4, 2025. Photo by Kang Jinhyung
In addition to the derivatives and bond markets, the authorities are considering launching loan products that use KOFR as the benchmark rate to promote its active use in the lending market as well. Han stated, "Considering the spread between the policy rate and CD yields, and the KOFR spread, if the margin is the same, KOFR-based loan products can reduce borrowers' interest burdens." He added, "Even if a bank's credit risk increases due to financial market instability, the bank will bear the credit spread over KOFR, so consumers can benefit from stable loan rates based on a risk-free rate."
Ultimately, the authorities are also considering removing the CD rate from the list of key benchmarks. Han explained, "Market participants overwhelmingly believe that removing CD yields from the list of key benchmarks is essential for KOFR to be firmly established as a benchmark rate," adding, "Formally discontinuing the calculation and publication of CD yields is crucial for the transition to KOFR."
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