What does loan benchmark interest rate mean?

The benchmark interest rate is a universal reference rate in the financial market. Other interest rate levels or financial asset prices can be determined based on this benchmark interest rate level. Under the conditions of interest rate liberalization, financiers measure financing costs, investors calculate investment returns, and management regulates the macro economy. Objectively, they all require a generally recognized benchmark interest rate level as a reference.

Among them, countries that use interbank offered rates as their benchmark interest rates include London Interbank Offered Rate in the United Kingdom, U.S. Federal Benchmark Interest Rate in the United States, Tokyo Interbank Offered Rate in Japan, Euro Interbank Offered Rate in the European Union, etc.; Countries that use repo rates as benchmark interest rates include Germany (1W and 2W repo rates), France (1W repo rates), and Spain (10D repo rates).

Extended information

The benchmark interest rate must have the following basic characteristics:

(1) Market-oriented. This is obvious. The benchmark interest rate must be determined by market supply and demand, and not only reflect the actual market supply and demand conditions, but also reflect the market's expectations for the future.

(2) Basic. The benchmark interest rate occupies a basic position in the interest rate system and financial product price system. It has a strong correlation with the interest rates in other financial markets or the prices of financial assets.

(3) Transitivity. The market signals reflected by the benchmark interest rate, or the regulatory signals sent by the central bank through the benchmark interest rate, can be effectively transmitted to other financial markets and financial product prices.