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 is an industry group chaired by a representative from the private sector
Euro short-term rate (ESTER)
The ECB has decided to develop a euro short-term rate (ESTER), which will reflect the wholesale euro unsecured overnight borrowing costs of euro area banks. ESTER will complement existing benchmark rates produced by the private sector and will be available by October 2019.
To ensure transparent communication, the ECB is committed to consulting the public at various stages. Two public consultations have been held and a summary of responses was published for each.
The calculation method is now also available, as well as preliminary figures, referred to as pre-ESTER.
Working group on euro risk-free rates
The ECB has set 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 is tasked with, among other things, identifying and recommending alternative risk-free rates.
The members of the working group were selected via a call for expressions of interest. In addition, two subgroups on term structure and contact robustness have been set up. The minutes from each meeting of the working group are published on the ECB website.
A first public consultation is currently underway to gather feedback from market participants and all other interested parties on the three candidate euro risk-free rates. It will run until 17:00 CET on 13 July 2018.