Interest rate benchmarks

Interest rate benchmarks are essential for the smooth functioning of the financial market and are widely used by banks and other market participants. The ECB also relies on benchmarks when operationalising and monitoring the transmission of its monetary policy.

Interest rate benchmarks are currently undergoing in-depth reforms. The ECB decided to take action as benchmark rates have an important anchoring role for contracts in financial markets. The ECB recently launched two initiatives:

  • the development of a daily euro unsecured overnight interest rate
  • the set-up of a working group, together with other European institutions, to identify alternative risk-free rates for widespread adoption – this working group will be an industry group chaired by a representative from the private sector

Euro unsecured overnight interest rate

The ECB has decided to develop a daily euro unsecured overnight interest rate. This will complement existing benchmark rates produced by the private sector and will be finalised before 2020.

To ensure transparent communication, the ECB is committed to consulting the public at various stages. A first public consultation was launched in November 2017 to gather feedback from market participants. It ended on 12 January 2018 and a summary of the responses was published.

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Working group on euro risk-free rates

The ECB is setting up a working group, together with the Financial Services and Markets Authority (FSMA), the European Securities and Markets Authority (ESMA) and the European Commission, which will be tasked with, among other things, identifying and recommending alternative risk-free rates.

A call for expressions of interest in participating in the working group was announced in December 2018, with a deadline of 12 January 2018. Although this deadline has now passed, it is still possible for non-banking institutions and associations to flag their interest in contributing to the activities of the substructures reporting to the working group.

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