Interbank rates represent the interest rates at which banks lend money to each other in wholesale money markets. These rates serve as fundamental benchmarks for various financial products and reflect credit conditions, monetary policy, and market liquidity. Key interbank rates include SOFR (Secured Overnight Financing Rate), SONIA (Sterling Overnight Index Average), and €STR (Euro Short-Term Rate).

Interbank rates significantly influence mortgage rates, corporate borrowing costs, and derivative pricing across global financial markets. Central bank policy changes directly affect interbank rates, which then transmit to broader economic activity. Understanding interbank rate dynamics is essential for fixed-income trading, credit analysis, and monetary policy assessment.

Real-world example: The Federal Reserve’s rate hike causes SOFR to rise from 1.5% to 2.0%, leading to higher mortgage rates, increased corporate borrowing costs, and appreciation in interest rate-sensitive financial sector stocks.