QA Series No 25 - Different Rates of RBI - Part 2

 

The Banking Tutor

Question Answer Series 2025

S No 25                                                                    19-07-2025

RBI Rates – Part 02 

29. What is the relation between SDF rate and Reverse Repo Rate ? 

The Standing Deposit Facility (SDF) and Reverse Repo Rate are both tools used by the Reserve Bank of India (RBI) to manage liquidity in the banking system, but they differ in their mechanisms. The SDF allows the RBI to absorb excess liquidity from banks without requiring collateral (government securities), while the Reverse Repo Rate involves the RBI borrowing from banks by providing them with collateral. In essence, the SDF is a collateral-free way for the RBI to withdraw liquidity, while the Reverse Repo is a collateralized method. 

30. What is MIBOR ? 

The full form of MIBOR is Mumbai Interbank Offered Rate. It is a benchmark interest rate in India that represents the rate at which banks lend to each other in the Mumbai interbank market. MIBOR is used as a reference rate for various financial products and is calculated daily by the Clearing Corporation of India Limited (CCIL). 

31. In what context MIBOR is being used presently ? 

MIBOR was replaced by the FBIL-Overnight MIBOR in 2015. 

32. What is FBIL ? 

Financial Benchmark India Pvt. Ltd (FBIL) is an independent benchmark administrator for interest rates and foreign exchange. 

The FBIL, jointly owned by FIMMDA, FEDAI and IBA, was formed in December 2014 as a private limited company under the Companies Act 2013. Its aim is to develop and administer benchmarks relating to money market, government securities and foreign exchange in India. 

33. What is meant by Significant Benchmark Rate ? 

A ‘Significant benchmark’ is any benchmark notified by Reserve Bank as a significant benchmark under the Financial Benchmark Administrators (Reserve Bank) Directions, 2019 considering its use, robustness and credibility in domestic and international markets. These benchmarks contribute significantly to the financial stability of the market. 

34. What are the important Significant Benchmark Rates managed by RBI ? 

The following are the significant benchmarks notified by RBI:

 

1. Overnight Mumbai Interbank Outright Rate (MIBOR)

2. Modified Mumbai Interbank Forward Outright Rate (MMIFOR)

3. USD/INR Reference Rate

4. Treasury Bill (T-Bill) Rates

5. Valuation of Government Securities (G-Sec)

6. Valuation of State Development Loans (SDL) 

35. What is MMIFOR ? 

MMIFOR stands for Modified Mumbai Interbank Forward Outright Rate. It is a benchmark rate used in India for financial contracts. It's a successor to the Mumbai Interbank Forward Offer Rate (MIFOR), which relied on the London Interbank Offered Rate (LIBOR). 

MIFOR, the earlier benchmark, used the LIBOR, which faced rate-fixing scandals and was phased out globally. 

36. What is a Reference Rate ? 

Reference rates are benchmark interest rates, used as a basis for calculating other interest rates between market participants. 

37. What is an Alternate Reference Rate (ARR) ?  

An Alternate Reference Rate is an interest rate that replaces a previously used benchmark rate, like LIBOR, in financial contracts. These new rates are designed to be more robust and less susceptible to manipulation than the older benchmarks, and their adoption is part of a global shift in financial markets.

38. Why ARRs more reliable ?

ARRs are derived from observable, transaction-based data, making them more reliable.

39. What is SOFR ?

SOFR (Secured Overnight Financing Rate): Used as a replacement for USD LIBOR. 

40. What is SONIA ?

SONIA (Sterling Overnight Interbank Average): Used as a replacement for GBP LIBOR.

41. What is €STR ?

€STR ? (Euro Short-Term Rate): Used as a replacement for EUR LIBOR.

42. What is  SARON ?

Swiss Average Rate Overnight (SARON): Represents the overnight interest rate of the secured money market for Swiss francs (CHF).

43.  What is TONAR ?

Tokyo Overnight Average Rate (TONAR): Used as an alternative to JPY LIBOR. 

44. What is the difference between LIBOR and ARRs ? 

LIBOR is a forward-looking rate and includes a credit risk premium. ARRs, on the other hand, are backward-looking and generally considered risk-free (though some may include a small credit risk component). 

45. When we say LIBOR is forward-looking, what we mean ? 

LIBOR is a forward-looking rate is fixed for various tenors (e.g., overnight, 1 month, 3 months, 6 months) at the beginning of the borrowing period. 

46. What we mean in saying ARRs are backward-looking? 

ARRs are primarily backward-looking, meaning the rates are calculated at the end of the interest period, looking back at the average rate over that period. 

47. What is SORR of RBI ? 

SORR stands for Secured Overnight Rupee Rate (SORR) is a interest rate benchmark introduced by the Reserve Bank of India (RBI) to replace the Mumbai Interbank Outright Rate (MIBOR). It is based on secured money market transactions, primarily market repo and tri-party repo (TREP) segments, and is designed to be a more robust and credible benchmark for overnight interest rates in India. 

48. What is RBI Reference Rate ? 

RBI reference rate is the official exchange rate between the Indian Rupee and major foreign currencies (USD, GBP, EUR, and JPY) published daily by the RBI. 

49. What is REER of RBI ? Explain briefly. 

RBI regularly publishes data on the Real Effective Exchange Rate (REER) of the Indian Rupee. 

REER is used as an indicator of external competitiveness. 

REER is a weighted average of nominal exchange rates adjusted for relative price differentials between domestic and foreign countries. 

The rupee is considered fairly valued if the REER is close to 100 or the base year value. 

A REER value above 100 indicates that the rupee is overvalued relative to the base year (2015-16), which makes exports less competitive and imports cheaper. 

50. What is NEER of RBI ? How it differs from REER ? 

NEER and REER are both economic indicators that reflect a country's currency value and trade competitiveness, but they differ in their approach. 

NEER, or Nominal Effective Exchange Rate, is a weighted average of a currency's exchange rates against a basket of other currencies, without considering inflation. 

REER, or Real Effective Exchange Rate, is NEER adjusted for relative price levels (inflation) between countries, providing a more accurate picture of a currency's purchasing power and trade competitiveness. 

Next Issue  will be shared on 21^st    July 2025.

Sekhar Pariti

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