Transcript of Question & Answer Session The End of Libor and the Australian Market

Thank you very much, Mr Kent. Thank you for the keynotes. You've sent a very clear message to the market participants about the urgency to do active transition as soon as possible. So, we've received a question from KangaNews, so I'm going to go ahead, to read the question. Is the RBA taking a position of guidance on how Australian market participants should approach cross-currency swaps: moving to risk-free rate or returning to BBSW for the Aussie dollar lag?

No, I think our broader message is that people who use different products should think about what is the most appropriate benchmark that suits that particular product. One thing, as I said in my remarks, is part of what we do here in Australia is going to be driven by trends offshore. So I imagine if there is a move on contracts which currently reference a credit-based benchmark, but offshore they're moving away from those to risk-free rates, then for those sorts of products, if that's a widespread trend offshore, then I imagine that we may well follow that here, and go with the international trend.

Thank you. Thank you very much. So now [we'll] change to a different topic. We've also received a very interesting question, pre-submitted to us. The question says, ‘In 2019/2020, we saw the US Fed Reserve pump hundreds of billions of dollars into the repo market to bring the repo rate down, following market activity that drove the overnight repo rate to 10%. We have seen the RBA use its expert judgment on a number of occasions, determining the overnight cash rate because of a lack of underlying interbank cash transactions. Regulators and central banks have said they want benchmarks to be established by market transactions, but we seem to be seeing more instances of regulators influencing the final rate set. Is it possible to set benchmarks based solely on market transactions, or will we always need regulatory intervention and expert judgment by central banks to determine benchmarks like SOFR or RBA cash rate?

Well, I think the thing to emphasise is that a robust benchmark is one that can be formed in a range of different market conditions. It has to be done so reliably [and] very importantly transparently, so that it can continue to represent the rate that it is intended to measure. But at the same, active markets can still have low liquidity at times, including as you suggest, in the overnight cash rate market here. So in order to deal with that, robust benchmarks must have a clear waterfall which sets out how the benchmark will be calculated under those different conditions, including when and how expert judgment should be used. As a result of having put such a waterfall process in place, we're very confident that the cash rate is and will remain a robust benchmark. It allows us to always publish the cash rate, that waterfall structure. We've used that waterfall of late, but by no means all the time, and we have had numerous occasions where we are publishing a rate based on sufficient transactions on a given day's trade. Importantly, even when we're using expert judgment, my assessment is that that clearly and closely resembles the cost of trading cash in that market. So I guess that's how I would respond to that question.

Thank you. Thank you very much. I think this brings to the end our keynote session. Thank you again. Thank you very much, Governor Kent, for the excellent keynote.

Thank you very much. Thanks Jing. Good luck in the rest of your day.

Thank you.