The Sterling Overnight Interbank Average Rate (SONIA) is a benchmark interest rate that is used to set the interest rates for a wide range of financial products in the United Kingdom. It is calculated as the weighted average overnight rate at which banks lend and borrow unsecured funds in the British pound sterling (GBP) wholesale money market.SONIA was introduced in 1997 as a replacement for the London Interbank Offered Rate (LIBOR), which had been used as the benchmark interest rate for the GBP overnight market. SONIA is calculated by the Bank of England (BoE) and is based on actual transactions in the overnight market, whereas LIBOR was based on estimates submitted by a panel of banks.SONIA is used as a benchmark rate for a wide range of financial products, including derivatives, bonds, and loans. It is also used to set the interest rates for some financial products, such as overnight indexed swaps (OIS) and forward rate agreements (FRA).SONIA is considered to be a more robust and transparent benchmark rate than LIBOR, as it is based on actual transactions, and is less susceptible to manipulation. The BoE also plays a key role in the calculation of SONIA and ensures that the process is transparent, which makes it a reliable benchmark rate for financial products.
