The LIBOR is the benchmark interest rate that the world’s leading banks pay each other for short-term loans (interbank rate).

It stands for ‘London Interbank Offered Rate’ and essentially serves as the benchmark that global banks use to determine the interest cost of short-term loans.

The rate then becomes useful in determining - and as a reference point - for government bonds, mortgages, student loans, credit cards, and derivatives.

Sudden spikes in the LIBOR, as experienced during the height of the 2008 financial crisis for example, signals the credit conditions are worsening and liquidity is becoming less readily available.

That generally tends to bode poorly for the global economy. When LIBOR rates are consistently low, the opposite tends to be true.

What is the Interbank Rate?
What is Euro LIBOR?