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Mumbai Interbank Offered Rate (MIBOR)

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Deciphering the Mumbai Interbank Offered Rate (MIBOR): A Comprehensive Guide

Understanding the Mumbai Interbank Offered Rate (MIBOR) is essential for navigating India's financial landscape. This article delves into the intricacies of MIBOR, its calculation, historical significance, and comparison with related rates like MIBID.

Unraveling the Mumbai Interbank Offered Rate (MIBOR)

The Mumbai Interbank Offer Rate (MIBOR) serves as a crucial benchmark for India's interbank lending market. It represents the interest rate at which banks lend to each other on a short-term basis. Introduced in 1998, MIBOR plays a pivotal role in shaping India's monetary policy and financial markets.

Exploring the Calculation and Significance of MIBOR

Calculated daily by the National Stock Exchange of India (NSEIL), MIBOR is derived from the lending rates of major banks across the country. This weighted average rate reflects the cost of borrowing for first-class borrowers in the Indian interbank market. With its close resemblance to the London InterBank Overnight Rate (LIBOR), MIBOR is increasingly utilized in various financial transactions, including forward contracts and floating-rate debentures.

Tracing the Evolution of MIBOR

Since its inception, MIBOR has evolved to include different tenors, catering to varying needs in the money market. Initially launched as an overnight rate, MIBOR now encompasses multiple durations, facilitating a wide range of financial transactions. As a trusted benchmark rate, MIBOR continues to underpin numerous money market deals in India.

MIBOR vs. MIBID: Understanding the Distinction

The Mumbai Interbank Bid Rate (MIBID) and MIBOR represent two sides of the interbank lending market. While MIBOR signifies the rate at which banks lend to each other, MIBID denotes the rate at which one bank bids to attract deposits from another. The spread between MIBID and MIBOR forms the bid-offer spread, influencing the dynamics of overnight lending rates in India.

Facts about MIBOR:

  • MIBOR was established in 1998 by the Committee for the Development of the Debt Market in India.
  • The calculation of MIBOR involves input from a panel of 30 banks and primary dealers.
  • MIBOR serves as a key reference rate for setting short-term monetary policy by the central bank of India.