RBI introduces new rate of interest benchmark

The Reserve Financial institution of India (RBI) has determined to drift a brand new rate of interest benchmark – the Secured In a single day Rupee Price (SORR) – to seize the essence of the broader cash markets and to enhance credibility of the index.

The brand new benchmark will probably be based mostly on the secured cash market transactions – each market repo and tri occasion repo (TREPS). Collectively, they account for 98% of in a single day cash markets and embody participation from each banks and non-banks.

The SORR, due to this fact, could be extra consultant of the in a single day market funding price than the decision cash market.

“The index that we are going to have now will seize all secured transactions,” deputy governor Michael Debabrata Parta stated Friday at a post-policy media interplay, responding to a question from ET.

The RBI’s determination to introduce this was based mostly on the suggestions of the committee on Mumbai Interbank Outright Price (MIBOR) benchmark which reviewed the rate of interest benchmarks in India.

The committee, headed by RBI government director Ramanathan Subramanian, noticed that benchmarks based mostly on these collateralised transactions are additionally prone to be extra sturdy and fewer inclined and therefore finest suited as benchmarks for rate of interest derivatives used for the aim of hedging. SORR will ultimately substitute the MIBOR, which has been in vogue since 1998.