The interest rate that banks incur and pay to borrow funds from other banks in the money market overnight (interbank overnight loans). It is also defined as the interest rate that a central bank will charge commercial banks (operating in its own jurisdiction) for very short term loans.

In setting their own interest rates for borrowing, the rates charged by commercial banks on loans extended and deposits mobilized are principally affected by the cash rate. Central banks use these rates as a means by which consumer spending is controlled (encouraged or discouraged), depending on economic situation in a country.

Broadly speaking, the overnight money market interest rate represents the interest that banks and lenders have charge on the money borrowed. In their banking business, money flows between and amongst banks, using the overnight money market interest rate as the interest paid on such amounts.

The overnight money market interest rate is also referred to as the cash rate, as money between banks are transferred and processed overnight, and the overnight money market interest rate reflects the interest that must be charged or paid on this money.

The interbank overnight lending rate is the overnight money market interest rate which a lending bank charges a borrowing bank- in the interbank market– on the funds borrowed for liquidity management purposes. The interbank lending may take the form of at-call loans (call loan) or that of fixed term loans, (from overnight to 6 month maturities).

The overnight money market interest rate is also known as the bank rate or the base interest rate.