Russia’s Cabinet approves replacement of LIBOR rate with special Central Bank rate
MOSCOW, July 27 (RAPSI) — The Government Law-Making Commission has approved an initiative to replace the LIBOR (London Interbank Offered Rate) rate with the special rate of the Bank of Russia when disciplining credit institutions failing to remedy registered breaches, the press service of the Association of Lawyers of Russia informs RAPSI.
Currently, the legislation widely uses the LIBOR rate as a benchmark, which serves as a reference for short-term interest rates in the global market. However, after 2021, the calculations and publication of the LIBOR indicator will cease, Vladimir Gruzdev, the Association Board Chairman said.
According to Gruzdev, the innovation is associated with the decision of the G20 to reform financial indicators.
This draft law proposes to replace the LIBOR rate with the rate calculated by the Bank of Russia. It cannot be less than two-thirds of the interest rate on deposits denominated in rubles, US$ deposits and deposits in euros attracted by Russian banks. This rate, in particular, will be used by the Bank of Russia when applying measures to credit institutions in the event that they fail to comply with the instructions to eliminate violations in time, the Association Board Chair explained.
The interest rate will be calculated by the Bank of Russia on a monthly basis in rubles, dollars and euros and will affect sight deposits as well as a wide range of time deposits.
It should be noted that after LIBOR is abolished, financial market will face a difficult transition period. Until now, the LIBOR rate has been considered a key benchmark for the value of money. In connection with the termination of its use, financial market participants will need to significantly change their product portfolios, risk management models and IT infrastructure. The decision to abandon the LIBOR rate was made due to the lack of transparency in the mechanism of its formation, Gruzdev summed up.