The Euro Short-Term Rate (ESTR) is the interest rate benchmark for overnight borrowing costs throughout the euro area. It’s calculated and published by the European Central Bank (ECB) as a replacement for the Euro Overnight Index Average (EONIA) and the Euro Interbank Offered Rate (EURIBOR).
How does the ESTR interest rate work?
The ESTR interest rate works by using data collected from daily reports on money market transactions by the largest eurozone banks – only transactions over one million euros are included.
The transactions are ordered from lowest to highest, then the top and bottom 25% are then trimmed off. The mean of the remaining 50% is rounded to three decimal places to get the ESTR rate. The index is published on the following business day, so all data has a maturity of one day.
To prevent the rate from being manipulated, as the LIBOR rate was in 2008, the ESTR is under a strict set of guidelines that aim to protect the integrity of the process.