MIBOR and MIBID are the interest rate benchmarks in India. A benchmark is the standard rate used widely for other for settling financial obligations. Interest rate benchmark means the rate that is used as a standard or base to pay interest rate for deposits and loans.
In India, there are several such benchmarks for interest rate, foreign exchange rate etc. The MIBOR (Mumbai Interbank Offer Rate) and MIBID (Mumbai Interbank Bid Rate) are the two interest rate benchmarks in the Indian Interbank market where most of the transactions are done in Mumbai. Following are some of the snapshot points about these two rates.
MIBOR and MIBID are interest rate benchmarks
Both are benchmark interest rate prevailing in Mumbai Inter-Bank Money Market.
MIBOR is the Indian equivalent of LIBOR
MIBOR is loan interest rate; it is the rate at which a lender would like to charge.
MIBID is the interest rate that a borrower like to pay while getting a loan.
To understand the difference between MIBOR and MIBID, keep it in mind that MIBOR is the offer rate. Or it is the rate at which the lender offers loans.
On the other hand, MIBID is the bid rate or the rate at which a borrower seeks a loan.
MIBOR is the rate offered/asked by lenders whereas MIBID is the bid rate quoted by borrowers. Both offer and bid are part of loan obtaining activities.
What is the use of MIBOR and MIBID?
The function of both MIBOR and MIBID is to act as financial benchmarks. Here, the MIBID/MIBOR rate is used as bench mark rate for majority of deals struck in the derivative market. The rate/value of Interest Rate Swaps (IRS), Forward Rate Agreements (FRA), Floating Rate Debentures and Long-Term Deposits are determined on the basis of MIBOR/MIBID.
