IBOR rates, i.e. interbank offered rate (interbank reference rate), are set out in a variety of ways in different markets. The feature they share is the standing practice whereby there is a always a selected group of banks which quote reference rates in the money markets for periods from 1 day to 1 year. From the borrower’s point of view, 1M, 3M and 6M rates are most important as it is based on these terms that the loan is sanctioned. Rates for loans denominated in foreign currencies are quoted on the London and European Markets. Fixing takes place at 11 am GMT and this is when the selected group of banks quotes rates at which it is ready to offer funds for a given term.

In regular market conditions LIBOR rates (London Interbank Offered Rate) are subject to two main systems of laws. First of all – the longer the period, the higher the rate should be to reflect the risk of long-term lending. Secondly – LIBOR rates should, at least partially, reflect the expectations of the interest rates in the interbank market. With strong dovish expectations, the curve made up of quotations should be downward sloping. The market situation is well reflected by the difference in the 3M WIBOR and 3M OIS’s based on the POLONIA rate.

OIS (overnight index swap) is a swap in which we compare the fixed rate to the POLONIA rate, i.e. the average weighted from the borrowing transactions on one day. Since, thanks to central banks’ intervention, O/N transaction rates keep close to reference rates set out by these banks, it can be concluded that OISs are a good measure of interest rate expectations stripped of the credit crunch effect. The difference in the rates will be the measure of lending aversion in the interbank market.

In such a situation, banks put the willingness to generate profit from cut interest rates over the risk of long-term lending. If the market has hawkish expectations, the rates will grow pro-rata to expectations and the curve will grow with a big slope. It is worth adding that a steep curve is very beneficial for the bank. The Bank obtains cheap funding with, for example, 3M WIBOR while basing loans on 6M WIBOR taking the interest rate spread to its own portfolio. In the case of access to cheap money, the bank can shorten the lending period even more yet this way it carries a high risk of not being able to obtain funding in the market when it will be needed most. This very scenario materialized for a few mortgage banks, e.g. Northern Rock. Certainly for the customer, the opposite situation is more beneficial. What is more, it seems that it is worth basing WIBOR on the shortest possible rate.

The rate quoted on the Polish market, i.e. WIBOR (Warsaw Interbank Offered Rate) differs from the one quoted in London. WIBOR rate is quoted by 14 banks – money market dealers selected in the competition by the National Bank of Poland. Selection criterion is the share in the Polish cash instruments and derivative instruments market.

Banks quote two rates at 11am. The rate at which they take deposits and a rate at which they are ready to lend. The spread, i.e. the difference between the two rates is strictly limited at 20 bps for transactions with a term over 1 month. Moreover, WIBOR in Poland is a transaction rate which means that following the quotation banks should conclude transactions at the prices proposed by them for a short period of time. The average of the 14 banks’ quotations is calculated and this way WIBOR rate is created.