The Bank of Canada expects to introduce an enhanced version of its overnight risk-free interest rate benchmark next year. The Canadian Overnight Repo Rate Average, or CORRA, would be administered by Canada’s central banking authority beginning in the second quarter of 2020. Officials said that they intend to significantly expand the scope of transactions used to calculate CORRA, introducing a new methodology that would mitigate idiosyncratic risk.

The Bank’s announcement comes as part of an ongoing global effort to shift financial markets away from rates derived from bank estimates. Benchmarks calculated using overnight transaction data are more reliable reference rates for financial institutions.

The Bank of Canada has no immediate plans to end the Canadian Dollar Offered Rate (CDOR), Canada’s quote-based rate. CDOR relies on banks’ lending rates instead of estimated borrowing costs, making it uniquely resistant to manipulation.

Bank of Canada Deputy Governor Lynn Patterson anticipates that the enhanced CORRA will be adopted across a range of financial products, eventually becoming “the dominant Canadian interest rate benchmark, particularly in derivatives markets.”

Canada’s central bank will focus on improving CORRA; many central banking authorities globally have opted to phase out existing benchmarks and adopt new rates altogether. The Bank of Canada believes their gradual refinement approach will help ease the transition for Canadian markets.

Read More via The Wall Street Journal