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SONIA (Sterling Overnight Index Average) is the benchmark interest rate for overnight lending in the UK. Following the discovery of manipulation of LIBOR in 2012, the Bank of England (BoE) selected SONIA as primary alternative reference rate (ARR) to be used by financial institutions. This came into effect on 31st December 2021 when all published sterling LIBOR rates were stopped.
SONIA is calculated as the weighted average of all actual overnight loans made between banks in the London interbank market. The weighting is based on the amount of each loan and the calculation is performed by the Bank of England. SONIA is published each working day at 9:00 a.m. London time.
Key benefits of using SONIA over the London Interbank Offered Rate (LIBOR) include:
The migration from LIBOR to SONIA is important to many market participants, including banks, asset managers, financial advisors and regulators. As a benchmark it is more transparent, robust, and reflects the market activities better. As such, it will help to improve stability and integrity in financial markets.
You can read the latest updates from the BoE by clicking here.
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