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Australia's RBA working on replacement for BBSW benchmark

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The Reserve Bank of Australia is working on a new interest rates benchmark for debt markets that could eventually replace the scandal-tainted bank bill swap rate (BBSW), a top central banker said on Monday.

[SYDNEY] The Reserve Bank of Australia is working on a new interest rates benchmark for debt markets that could eventually replace the scandal-tainted bank bill swap rate (BBSW), a top central banker said on Monday.

The RBA and the Australian Securities and Investment Commission (ASIC) aimed to create a robust risk-free interest rate benchmark for the local market, said RBA Assistant Governor Guy Debelle in a speech on the bond market.

It would likely be based on overnight indexed swap (OIS) rates, which are essentially tied to the RBA's over night cash rate. "Once this is operational, this will help engender a movement of products towards referencing a risk-free benchmark rather than a credit benchmark such as bank bill swap rates,"said Debelle. "We expect to see progress on this in the coming months." The BBSW is currently used to set interest rates on over A$300 billion (S$319 billion) of wholesale and retail fixed income securities, but has been compromised by charges of manipulation by banks for their own profit.

ASIC is investigating several banks for potential misconduct over a period stretching from early 2007 to 2013.

This is just part of a global probe into the manipulation of benchmarks, the most serious being the London Interbank Offered Rate which underpins around US$350 trillion in derivatives.

REUTERS