MIBOR (Indian reference rate)

MIBOR, or Mumbai Interbank Offer Rate, is a benchmark interest rate that reflects the average rate at which banks in Mumbai, India are willing to lend unsecured funds to other banks in the interbank market. It serves as a key reference rate for a variety of financial products, including interest rate swaps, forward rate agreements, and floating rate loans.

MIBOR is administered and calculated by the National Stock Exchange of India (NSE). It's derived from quotes submitted by a panel of banks representing the Indian banking system. These banks are carefully selected based on criteria such as asset size, credit rating, and activity in the interbank market to ensure that the rate accurately reflects market conditions.

The NSE calculates MIBOR rates for overnight and various tenors ranging from 14 days to 3 months. The calculation involves trimming the top and bottom quartiles of the submitted quotes and then averaging the remaining quotes. This process is designed to minimize the impact of outlier quotes and ensure a robust and representative rate.

MIBOR's importance lies in its role as a benchmark for pricing financial instruments and assessing the cost of funds in the Indian market. It provides a transparent and readily available indication of interbank lending rates, allowing market participants to price risk and manage their interest rate exposures effectively. However, with the increasing global push for more robust and risk-free reference rates, MIBOR has been subject to scrutiny and efforts are underway to transition towards alternative benchmarks in the Indian financial system.