What Is the Mumbai Interbank Forward Offer Rate (MIFOR⭕)?

The term Mumbai Interbank Forward Offer Rate (MIFOR) refers to a benchmark rate used by commercial banks for certain financial contracts in India. MIFOR was used for setting prices on forward-rate agreements and derivatives. It was a mix of the 澳洲幸运5官方开奖结果体彩网:London Interbank Offered Rate (LIBOR) and a forward premium derived from Indian foreign exchange markets. Daily MIFOR rates were published by Financial Benchmarks India Private Limited (FBIL) until June 30, 2023. India's central bank issued an advisory in mid-2021 encouraging all national banks to stop using MIFOR for new contracts by the end of 2021 as a result of the plan to phase out LIBOR.

Un𝓡derstanding the Mumꦗbai Interbank Forward Offer Rate (MIFOR)

MIFOR was a benchmark for setting 澳洲幸运5官方开奖结果体彩网:derivatives rates in India, with an element of currency exchange in the mix. This benchmark was configured by including the U.S. dollar overnight LIBOR rate, a 澳洲幸运5官方开奖结果体彩网:reference rate that comprised of the average of int🎐erest rates supplied by multiple bank𒁃s.

The benchmark also included the swap points of a currency swap between the U.S. dollar (USD) and 澳洲幸运5官方开奖结果体彩网:Indian rupee (INR) of the same maturity. That's because banks paid LIBOR to borrow dollars in the 澳洲幸运5官方开奖结果体彩网:interbank market and get rupees via the 澳洲幸运5官方开奖结果体彩网:currency swap. A premium was added to the swap points between the U.S. and India to compensate for the banks involved that furnished the rates in order to🀅 compensate for the credit risk involved. Calculating MIFOR was difficult because an unknown credit spread was added to the mix.

MIFOR didn't simply use the 澳洲幸运5官方开奖结果体彩网:interest rate differential between the U.S. and India for the specified maturity when calculating the swap points. For example, let's say the three-month U.S. rate was 4% while the India three-month rate was 6%. The interest rate differential would be 2%, but MIFOR added a risk premium toᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚ that differential, which changed frequently based on the banks providing the interbank rates.

Rates were published by India's 澳洲幸运5官方开奖结果体彩网:central bank, the 澳洲幸运5官方开奖结果体彩网:Reserve Bank of India (RBI) to help investors so they wouldn't have to calculate the swap points, which was the interest rate dif✃ferential between the U.S. and India for a particularඣ settlement date.

Special Considerations

In July 2021, the RBI issued an advisory to all national banks to stop using MIFOR as a benchmark for any new contracts issued after Dec. 31, 2021, when the bank would begin phasing out LIBOR. The move was in response to a rate-fixing scandal involving bankers at several large international 澳洲幸运5官方开奖结果体彩网:financial institutions that led to questions about the validity of LIBOR as a benchmark.

After the RBI stopped publishing MIFOR rates, they were temporarily published by FBIL, a private company owned by the Fixed Income Money Market and Derivatives Association of India, the Foreign Exchange Dealers' Association of India, and the Indian Banks' Association. This ceased on June 30, 2023. In June 2021, FBIL began publishing adjusted MIFOR rates and modified MIFOR rates daily for use in legacy and fresh contracts, respectively.

Mumbai Interbank Forward O▨ffer Rate (MIFOR) vs. London Interbank Offered Rate (LIBOR) vs. Mumbai Interbank Offered Rate (MIBOR)

MIFOR was slightly different from both LIBOR and 澳洲幸运5官方开奖结果体彩网:Mumbai Interbank Offered Rate (MIBOR). Both MIFOR and MIBOR had similar uses in the Indian financial markets, but a key difference was that MIFOR brought an element of currency exchange into its mix.

London Interbank Overnight Rate (LIBOR)

LIBOR was an average value of 澳洲幸运5官方开奖结果体彩网:interest rates calculated from daily estimates submitted by the leading global banks. This benchmark served as the first step to calculating interest rates on various loa𝓰ns throughout the world. For instance, a variable float🎀ing-rate debt instrument might be quoted at 100 basis points over LIBOR.

It was abandoned for new loans issued as of Dec. 31, 2021. This was in response to concerns within financial markets that arose after a rate-fixing scandal that began in 2012. Traders submitted artificially high or low rates to force LIBOR up or down to support the activities of their own institutions. As of December 2020, plans were in place to replace LIBOR with other benchmarks, such as the 澳洲幸运5官方开奖结果体彩网:Secure Overnight Financing Rate (SOFR) and the 澳洲幸运5官方开奖结果体彩网:Sterling Overnight Index Average (SONIA).

Mumbai Interbank Offered Rate (MIBOR)

This rate is one iteration of India's interbank rate, which is the rate of interest charged by a bank on a short-term loan to another bank. Banks borrow and lend money to one another on the interbank market in order to maintain appropriate, legal 澳洲幸运5官方开奖结果体彩网:liquidity levels, and to meet 澳洲幸运5官方开奖结果体彩网:reserve requirements placed on them b♍y regulators. Interbank rates are made available ꦜonly to the largest and most creditworthy financial institutions.

MIBOR is calculated every day by the 澳洲幸运5官方开奖结果体彩网:National Stock Exchange of India (NSE) as a weighted average of lending rates of a group of major banks throughout India, on funds lent to first-class borrowers. This is the interest rate at which banks can borrow funds from other banks in the Indian interbank market.

Disadvantages of MIFOR

As with any interest and currency 澳洲幸运5官方开奖结果体彩网:exchange rate transaction, there existed potential for risk associated with MIFOR, particularly when not hedged pro⛦perly. For example, if there was a credit risk issue with the banks involved, the MIFOR rate could have been impacted. As a result, MIFOR and any derivative that used 🧜it in its calculation could have had risks associated.

Bottom Line

The Mumbai Interbank Forward Offer R🌄ate (MIFOR) was the rate that Indian banks previously used as a benchmark for setting prices on forward-rate agreements and derivatives. It relied in part on the London Interbank Offered Rate (LIBOR). However, when LIBOR was phased out following a rate-fixing scandal, the transition away from MIFOR soon followed. Today, a modified version of MIFOR is published, based instead on the secured overnight financing rate.