PLN benchmark transition

At the beginning of the week I participated to the "Benchmark Reform Congress" organized by CEETA in Warsaw (Poland).

I discovered with interest the current situation in the Polish market with the strong push by the government to reform the interest rate benchmark and discontinue the use of WIBOR as the main benchmark by the beginning of 2023.

The transition could be more difficult than in the LIBOR case as 6 months before the potential discontinuation date, the replacement benchmark has not been decided yet. The current overnight rate is POLONIA, published by the central bank; it is used for collateral remuneration but there is almost no OIS transactions. The local CCP KDPW is in theory clearing those instruments but there is currently no outstanding transactions (even if there were some a couple of years ago).

The local players are discussing about potential new benchmarks. The current status is discussed in a long consulting paper published by GPW Benchmark: Transactions-based Interest Rate Benchmarks.

The discussion around those transition and the selection of an overnight benchmark reminded me of a blog dating from 2014 (!) titled "Change of benchmark overnight index is a difficult task". The situation 8 years ago was a desire by the US Federal Reserve to use a repo rate based overnight benchmark to replace the Fed Funds overnight benchmark. ISDA then said: "change easy to absorb". We are now almost 8 years later and the "easy" changes are not achieved yet. On the theoretical side,  many research papers have been and still are published to understand the direct and indirect impacts[1]. On the practical side, the transition is not done yet with many CSA still on Fed Funds, Fed Funds volumes at LCH last week higher than SOFR and financial institutions have spend hundred of millions of dollars in Benchmark change related projects.

From my point of view, even if we have done a lot of progress in understanding the intricacies of change of benchmarks, I would not change my opinion: "Change of benchmark overnight index is a difficult task". And a can only wish "all the best" to the PLN market in its transition.

[1] I'm the author of some of those papers. Among them:

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