The commercial banks in Thailand play an important role in the money market. The interbank market is a major source of short-term money market in Thailand and major lenders are commercial banks. The interbank rate is the interest rate the lending bank charges the borrowing bank on short-term loans borrowed for the purpose of adjusting the commercial bank's liquidity. The interbank rate represents an important cost for commercial banks and is used as a basic criterion to set the lending interest rate and the deposit interest rate. This study tries to investigate the determinants of the interbank interest rate in the Thai banking system, which are: the SIBOR (Singapore Interbank Offered Rate), the repurchase rate, the forward rate, the change in bank deposits, the change in bank loans, the change in foreign assets, and the change in foreign liabilities held by banks. In addition, this study will also discuss how these main factors impact the interbank interest rate in the Thai banking system. The research methodology uses the secondary data, which are on a monthly basis from January 1991 to December 2000, to estimate the equation by using the Ordinary Least Square (OLS) method and Autoregressive Integrated Moving Average (ARIMA) model. The results found that before the financial crisis, the SIBOR rate, the repurchase rate, and the forward rate impacted the interbank interest rate in the Thai banking system in the same direction. Moreover, the Ratio of Credit to Cash Inflow is positively related to the interbank interest rate and the net foreign exchange position is negatively related to the interbank interest rate in the Thai banking system before the financial crisis. Only the SIBOR rate, the repurchase rate, and the forward rate positively impacted the interbank interest rate in Thai banking system.
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