RBI Decides to Discontinue Mumbai Interbank Forward Outright Rate as a ‘Significant Benchmark’
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- 2 Min Read
- By Taxmann
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- Last Updated on 27 June, 2023
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The Reserve Bank of India (RBI) has announced a significant change that will impact the financial landscape. After June 30, 2023, the Mumbai Interbank Forward Outright Rate (MIFOR) shall cease to be recognised as a ‘significant benchmark’. This decision comes as a result of the cessation of the US Dollar LIBOR.
1. What are the significant benchmarks?
As per RBI circulars dated 01.01.2020 & 01.12.2022, the significant benchmarks administered by Financial Benchmarks India Pvt. Ltd. (FBIL) are the Mumbai Interbank Forward Outright Rate (MIFOR) and the Modified Mumbai Interbank Forward Outright Rate (MMIFOR).
MIFOR refers to a benchmark rate used by commercial banks for certain financial contracts in India. It is used for setting prices on forward-rate agreements and derivatives. The MMIFOR is used to adjust Secured Overnight Financing Rate (SOFR) among other components.
2. RBI’s Direction to Banks and FIs to Achieve full transition from LIBOR by July 01, 2023
Earlier, the RBI vide Circular no. RBI/2023-24/30 CO.FMRD.DIRD.01/14.02.001/2023-24; Dated 12.05.2023 directed banks and financial institutions (FIs) to ensure a complete transition away from the London Interbank Offered Rate (LIBOR) from July 01, 2023.
3. Smooth Transition to Alternative Reference Rates
To facilitate a smooth transition, banks/FIs are advised to ensure that no new transactions undertaken by them or their customers rely on or are priced using the US$ LIBOR or the Mumbai Interbank Forward Outright Rate (MIFOR).
The Banks in India have already been encouraged to undertake transactions using a widely accepted alternative reference rate (ARR) since December 31, 2021. Further, the Banks/FIs are also advised to take all necessary steps to ensure the insertion of fallbacks in all remaining legacy financial contracts that refer to US$ LIBOR.
The Reserve Bank will continue to monitor the efforts of banks/FIs to ensure a smooth transition from LIBOR.
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