Economics, Econometrics and Finance
8 years ago

Interbank interest rates drop after Norwegian liquidity policy shift.

SSRN Electronic Journal
Norwegian Interbank Market's Response to Changes in Liquidity Policy
Q. Farooq Akram, Jon H. Findreng

Paper Summary

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The Norwegian interbank market saw more trading and lower interest rates after the central bank changed its liquidity policy in 2011. Banks were given quotas for overnight deposits, with different interest rates for deposits within and beyond the quotas. This led to increased interbank trading, lower interest rates, and less volatility in rates. Before the policy change, interbank rates were usually higher than the key policy rate, but afterwards, they were closer to or below it.