FAQ Principles for calculating and publishing Nowa
Nowa is a measure of the interest rate on unsecured overnight interbank loans between banks that are active in the Norwegian overnight market.
Other data published daily in addition to Nowa include total transaction volume, number of transactions (deposits and loans) and information on whether normal or alternative data have been used.
Nowa is calculated on the basis of daily transaction data reported on Norges Bank’s RPD (money market data reporting) form, which include unsecured loans between the banks that report data on a daily basis made on banking day T, with maturity T+1. Loans with a nominal value of less than NOK 10 million or where Norges Bank is a counterparty are not included.
Nowa is calculated as a volume-weighted average of the interest rate on daily transactions (see above).
On days with insufficient data, Nowa will be calculated as a volume-weighted average of the interest rate on transactions completed on the reporting day and the interest rate on transactions included in Nowa the previous reporting day, adjusted for any changes in the policy rate. The calculation method will thus be the same on all days, but the dataset may be supplemented with historical data.
If there is insufficient data, an alternative dataset will be used consisting of (1) transactions for reporting day T and (2) transactions included in Nowa for the previous reporting day (T-1), adjusted for any changes in the policy rate. This method can be repeated on several consecutive days. The illustration below is an example of the calculation if the transaction volume is insufficient on two consecutive days.
Norges Bank took over as administrator of Nowa on 1 January 2020. Norges Bank thus has responsibility for drawing up principles for calculating and publishing the Nowa rate. Representives of banks that report money market transaction data on a daily basis and Nowa users meet regularly as a user group to provide input to the administrator on how the method for calculating Nowa is functioning.
Today, Nibor is by far the most widely used reference rate in Norway, while Nowa is only used to a small extent. It is up to users to choose the reference rate they prefer. Since Nowa is the recommended Norwegian krone reference rate more users will use Nowa as a fallback in contracts referencing Nibor. There is also reason to believe that more people will choose Nowa as the reference rate.
Our analyses suggest that Nowa will show little change as a result of the new calculation principles on most days. The biggest difference will be evident on days when transaction data is insufficient. Nowa was previously calculated as an unweighted average of actual loans and panel banks' estimates of the interest rate they would have charged on loans to other banks. From the turn of the year, historical data will be used instead, as explained above. Such a calculation method will have a much smaller impact on Nowa on days when transaction data is insufficient.
If Nowa must be calculated using the contingency method on the fourth subsequent day, Nowa shall be set equal to the current policy rate on that day. Thereafter, Nowa will be equal to the policy rate applicable at the time in question until there for a period of time is a basis for calculating Nowa in accordance with the calculation method described in 2.1, 2.2 and 2.3 in the principles for calculating Nowa.
As Norges Bank started collecting money market transaction data (RPD) in September 2019, there is limited transaction history to include in the new calculation method. In order to give an indication of how many times an alternative dataset would have been used historically, Norges Bank has calculated Nowa based on unsecured overnight transactions made via Norges Bank's settlement system in the period between September 2011 and October 2019. The calculations show that an alternative dataset would have been used on about 50 days in this period. By comparison, today's Nowa has been estimated on about 30 days in the same period.
Norges Bank will give notice on its website of any technical problems that delay publication of Nowa. Publication will take place as soon as possible.
Nowa will be republished if data errors are discovered between 09.00 am and 11.00 am the same day the rate was published and a new calculation shows a deviation from the previously published rate of more than 2 basis points. If the deviation is less than 2 basis points or if the error is discovered later in the day, Nowa will not be changed. To support transparency around the dataset, Norges Bank will publish a summary of any data errors discovered on a quarterly basis.