Recently, RBI released a report recommending key changes in methodology for computation of Mumbai Interbank Outright Rate (MIBOR) and proposed transition to a new secured money market benchmark for widely used product derivatives.
What is MIBOR?
- First introduced by National Stock Exchange (NSE) in 1998, it is the interest rate benchmark at which banks borrow unsecured funds from one another in the Indian interbank market.
- It is computed and published by Financial Benchmarks India Pvt. Ltd. (FBIL) on a daily basis.
- Currently, it is computed based on trades executed on Negotiated Dealing System or NDS-Call system in the first hour.
- Issues with current MIBOR: Based on a narrow volume (1% of daily money market volume) of call transactions, thin call money market volumes making MIBOR susceptible to volatility, etc.
Key recommendations of the Committee
- Change in computation methodology of MIBOR: Include transactions based on first 3-hours instead of first hour, to make MIBOR more representative of transactions in call money market and potentially increase its reliability.
- Benchmark based on secured money market: FBIL to develop and publish a benchmark based on secured money market computed from trades in the first three hours of basket repo and the TREP (tri-party repo) segments.
About Call Money Market and TREP
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