KUALA LUMPUR (Sept 24): Bank Negara Malaysia (BNM) has launched the Malaysia Overnight Rate (MYOR) as the new alternative reference rate (ARR) for Malaysia, as part of a transition to transaction-based rates.

MYOR will be administered and calculated by the central bank as the volume-weighted average rate of unsecured overnight ringgit interbank transactions, including the bank’s overnight monetary operations (excluding Standing Facilities).

The publication of MYOR will be at 10am on the following business day on the bank’s website.

The launch follows the introduction of ARRs in other markets globally “to improve the integrity of financial benchmark rates” in line with London Interbank Offered Rate (LIBOR) reforms after the Global Financial Crisis, the bank said.

“The introduction of ARRs aims to facilitate usage of benchmark rates that are more robust and based upon transactions in active, liquid markets.

In Malaysia, the MYOR will run in parallel to the existing Kuala Lumpur Interbank Offered Rate (KLIBOR) with periodic reviews. The multiple-rate approach is supported by the Financial Stability Board (FSB) and adopted by many other jurisdictions, it said.

“The availability of two financial benchmark rates provides market participants with the flexibility to choose the rate that best suits their needs and facilitates the development of MYOR-based products.

“The offering of MYOR-based products will provide a wider array of hedging instruments that will support additional risk management strategies,” BNM said.

On a related matter, publication of the two- and 12-month KLIBOR tenors will be discontinued on Jan 1, 2023. They are the least referenced rates in the market for financial contracts, BNM said.

“The remaining one-, three- and six-month KLIBOR tenors, which continue to reflect an active underlying market, will be reviewed in the second half of 2022,” it said.

Additionally, the central bank, in collaboration with the Financial Markets Committee and the Islamic Market Technical and Development Committee (IMTDC), will develop a new Islamic benchmark rate to replace the Kuala Lumpur Islamic Reference Rate (KLIRR) by the first half of 2022.