MIBOR : ECONOMY
NEWS : RBI released Report of the Committee on MIBOR
Benchmark.
WHAT’S IN THE NEWS ?
The Reserve Bank of India today placed on its
website the Report of the Committee on MIBOR Benchmark
(Chairperson: Shri R. Subramanian). The Committee was set up to review the
Rupee interest rate benchmarks in the country, especially the usage of Mumbai
Interbank Outright Rate (MIBOR) and to examine the need for transition to new
benchmarks.
Mumbai
Interbank Offer Rate (MIBOR) Overview:
- Purpose: Benchmark interest rate for
banks borrowing unsecured funds in the Indian interbank market.
- Introduced in:
1998 by the National Stock Exchange (NSE).
- Published by:
Financial Benchmarks India Pvt. Ltd. (FBIL), daily.
- Current Methodology:
Based on trades executed in the first hour of trading on the Negotiated
Dealing System (NDS-Call).
Call
Money Market:
- Definition: Financial institutions and
banks lending and borrowing funds for short-term needs.
Issues
with Current MIBOR:
- Narrow Volume:
Based on only 1% of the daily money market volume.
- Volatility: Low trading volumes make
MIBOR prone to volatility.
RBI
Committee Recommendations:
- Change in Computation Methodology:
Include transactions from the first 3 hours to make MIBOR more reliable.
- New Benchmark:
Based on secured money market transactions (basket repo and TREP) in the
first three hours.
- TREP: A type of repo contract
where a third party acts as an intermediary between two parties.
Source : https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=58800#:~:text=The%20Reserve%20Bank%20of%20India%20today%20placed%20on,examine%20the%20need%20for%20transition%20to%20new%20benchmarks.