The Sterling Overnight Interbank Average Rate (SONIA) is the overnight interest rate paid by banks on unsecured loans to other banks in the sterling market. SONIA is calculated using transactions from the previous day and is published daily at around 11:30am.
The Bank of England has used SONIA as its preferred measure of sterling overnight interest rates since April 2016, and uses it as the basis for setting the interest rate on its own overnight operations. What is SONIA interest rate today? The SONIA interest rate is the Sterling Overnight Index Average, which is the overnight interest rate paid on unsecured loans made in the British pound. The SONIA interest rate is published daily and is the average of the interest rates at which banks lend to one another in the overnight market. As of today, the SONIA interest rate is 0.05%. Is SOFR a risk-free rate? SOFR is not a risk-free rate. The reason for this is that SOFR is based on the rates at which banks lend to one another overnight, and these rates can be influenced by a number of factors, including credit risk. Is SONIA compounded daily? Yes, SONIA is compounded daily. This means that the interest rate is calculated daily and applied to the balance of the account each day. This results in a higher effective interest rate than if the interest was calculated and applied less frequently. How is term SONIA calculated? The Sterling Overnight Index Average (SONIA) is the overnight unsecured lending rate for the UK pound sterling.
SONIA is calculated by the Bank of England (BOE) as an average of the interest rates (expressed as percentages) at which banks offer to lend unsecured funds to one another in the overnight sterling market.
The BOE began publishing SONIA on 2 April 1996. It is published daily at 09:00 London time, with a daily cut-off time of 08:00.
In order to be included in the calculation, transactions must have a value of at least £5 million and must be concluded before the daily cut-off time.
As SONIA is an average of rates offered by banks, it is a completely different rate from the Bank of England's benchmark interest rate (known as the Bank Rate). The Bank Rate is the rate at which the BOE lends money to banks, and it is set by the BOE's Monetary Policy Committee.
The relationship between SONIA and the Bank Rate is important because changes in SONIA often precede changes in the Bank Rate. For example, if SONIA increases, this is often seen as an indication that the BOE will raise the Bank Rate in the future in order to control inflation.
What is SOFR and SONIA?
SOFR is the Secured Overnight Financing Rate and SONIA is the Sterling Overnight Index Average.
SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. The rate is calculated using the transactions data from the Depository Trust & Clearing Corporation's (DTCC) General Collateral Finance (GCF) Repo service.
SONIA is a measure of the cost of borrowing cash in the Sterling Overnight Interbank Average market. It is calculated using transactions data from a number of sources, including the Bank of England's sterling overnight interbank average (SONIA) panel of banks.