Since its introduction in October 2019, the Euro Short-Term Rate (鈧琒TR) has remained constant at between -0.51 and -0.59 percent until the second half 2022. Since then, it increased, peaking at 3.9 between the end of 2023 and the beginning of 2024. As of January 2025, the rate stood at 2.92 percent. The 鈧琒TR is an interest rate benchmark designed to replace the聽Euro OverNight Index Average (EOIA), adopting a different calculation methodology that returns significantly lower rates. It is intended that the EOIA will be discontinued from January 3, 2022.
How is the Euro Short-Term Rate calculated?
The 鈧琒TR uses transaction data included in daily reporting on monetary exchanges from the 52 largest eurozone banks to calculate the average interests rate attached to loans throughout a business day. Only unsecured loans are included, as the rate on secured loans would be affected by the type of underlying collateral. Several key respects distinguish the 鈧琒TR from alternative benchmarks like the EOIA, and the London Intrabank Offered Rate (LIBOR). First, the 鈧琒TR is based on transaction data alone, whereas the LIBOR asking major banks directly what rate they would charge other banks for short terms loans. The second main difference is that, by considering money market transactions rather than only intrabank lending (like the EOIA and LIBOR), the 鈧琒TR incorporates the role of other major actors like money market funds, insurance companies, and other financial corporations.
Difference between 鈧琒TR and EURIBOR
The Euro Interbank Offered Rate (EURIBOR) is the other main reference interest rate governing eurozone lending. The EURIBOR differs from 鈧琒TR though as it is based on a survey of the interest rates a panel of major banks would offer other major banks for interbank term deposits. There are therefore different reference rates published for different maturities, for example the EURIBOR one month rate, the EURIBOR six month rate, and the EURIBOR 12 month rate. In contrast, the 鈧琒TR is intended to track the cost of overnight borrowing.