Mumbai Interbank Offer Rate (MIBOR), Features, Key Difference

The Mumbai Interbank Offered Rate (MIBOR) is the interest rate at which banks in India lend short-term funds to each other, usually for overnight periods. It reflects the cost of borrowing in the interbank market and serves as a benchmark for various financial instruments. MIBOR is widely used in pricing loans, bonds, and derivatives. It also indicates the liquidity condition in the banking system and helps in understanding short-term interest rate trends.

Mumbai Interbank Offer Rate (MIBOR) Key Features

MIBOR is a benchmark interest rate that reflects short-term lending rates between banks in India and indicates overall liquidity conditions in the money market.

• Benchmark rate for the Indian interbank money market
• Represents short-term (mainly overnight) lending rates
• Calculated on a daily basis
• Based on inputs from major banks and primary dealers
• Derived as a weighted average of lending rates
• Reflects liquidity conditions in the banking system
• Used for pricing various financial instruments
• Ensures transparency in interest rate determination

Mumbai Interbank Bid Rate (MIBID)

The Mumbai Interbank Bid Rate (MIBID) is the rate at which banks are willing to borrow funds from other banks. It works alongside MIBOR and represents the demand side of the interbank market. 

• MIBID is the borrowing rate, while MIBOR is the lending rate
• Developed and published by the National Stock Exchange
• Calculated as a weighted average of deposit rates offered by banks
• Acts as a benchmark for large bank deposits
• Forms a pair with MIBOR in the interbank market

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Difference Between MIBOR and MIBID

MIBOR and MIBID are benchmark rates used in the interbank market to represent lending and borrowing rates between banks. While MIBOR reflects the rate at which banks lend funds, MIBID indicates the rate at which banks are willing to borrow funds.

Mumbai Interbank Forward Offer Rate (MIFOR)

The Mumbai Interbank Forward Offer Rate (MIFOR) is a benchmark rate used by Indian banks to price forward rate agreements and derivatives. It combines international and domestic market elements to determine interest rates for future contracts.

MIFOR is calculated using:

• The international benchmark rate (LIBOR)
• Forward premium from the Indian foreign exchange market

However, due to global benchmark reforms, the Reserve Bank of India discontinued the use of MIFOR as a standard reference rate after issues related to LIBOR manipulation.