A committee established by the Bank of England has formally backed a new reference rate for valuing sterling-based derivatives, the latest step in reforming benchmarks after the Libor scandal.
In a statement today, the central bank said a working group it established in 2015 to gather the views of major dealers had backed overnight borrowing rate Sonia for the role.
Sonia will act as a platform for further work to broaden and promote its use as an alternative to sterling Libor, contributing to an improvement in the resilience of the financial system.
The BoE has been taking baby steps towards this point for some time. A year ago, it assumed oversight of the benchmark in an effort to shore up governance.
The central bank’s executive director of markets Chris Salmon said the selection of Sonia was “an important milestone in the benchmark reform process”. A broader consultation on the use of the new benchmark will come in the middle of this year.