Calculation of Nowa in the event of insufficient transaction data
Extraordinary liquidity assistance from Norges Bank leads to reduced interbank lending. This means that Nowa may be calculated using the contingency method due to reduced lending activity. In a situation where this persists, Norges Bank deems it to be more appropriate to set Nowa equal to the prevailing policy rate. The policy rate largely reflects what banks pay for overnight loans and deposits.
Nowa is fundamentally a transaction-based overnight interest rate based on unsecured loans between banks that report daily transaction data to Norges Bank. Principles for calculating and publishing Nowa set minimum requirements for the activity on which the calculation of Nowa is to be based. If these requirements are not met, Nowa will be calculated using the contingency method.
In the period ahead, Nowa will be calculated in the following manner:
- If the requirements for sufficient data are not met, Nowa will be calculated using the contingency method for three successive days.
- If Nowa must be calculated using the contingency method on day four, Nowa will be set equal to the policy rate on that day. Nowa will thereafter be equal to the policy rate until Norges Bank deems it appropriate to calculate it in the normal way based on market transactions.
- This means that Nowa may be set equal to the policy rate, even if on some days there are enough transactions according to the criteria for normal calculation (cf 2.3 of “Principles for calculating and publishing Nowa”).
Nowa is the interest rate on unsecured overnight interbank loans between banks that are active in the Norwegian overnight market. Nowa is based on actual transactions reported on Norges Bank's RPD (money market data reporting) form.