Bank of England to take over key interest rate benchmark

From April 2018, the Bank of England (BoE) will be taking over the administration of the Sterling Overnight Index Average (Sonia), the reference rate that was chosen to replace the London Interbank Offer Rate (Libor) earlier this year. Sonia is used to value Sterling-based derivatives and has replaced Libor as the benchmark rate at which banks will be willing to lend to each other. The benchmark is also important to the wider economy as it is used to set the rate of other instruments such as mortgages and corporate debt. Libor came under close scrutiny following scandals involving rate-rigging, and since a marked fall in interbank lending the integrity of the benchmark has been increasingly deemed it unfit for purpose. Shifting to a new benchmark is seen by the BoE as an important and necessary step in improving the stability of the financial system – a key remit of the central bank – though the process will have to be managed very carefully.