Does structural liquidity have a greater impact on the Nibor premium than earlier?
- Marius Hagen and Kjetil Stiansen
- Staff Memo
In recent years, the liquidity premium between the Norwegian krone (NOK) and the US dollar (USD) in the FX swap market, the so-called OIS basis, has accounted for a larger share of the Nibor premium than earlier. This has been attributed by several to low structural liquidity and banks' adaptation to liquidity requirements (LCR). In this Staff Memo, we estimate the extent to which these factors have affected this liquidity premium, and whether this has changed over time. The results indicate that the relationship between structural liquidity and the OIS basis has become stronger, but that the increase in the OIS basis in recent years is also due to a low level of structural liquidity.
Staff Memos present reports and documentation written by staff members and affiliates of Norges Bank, the central bank of Norway. Views and conclusions expressed in Staff Memos should not be taken to represent the views of Norges Bank.
ISSN 1504-2596 (online)