Call money rates were regulated in the past by the RBI or by a voluntary agreement between the participants through the intermediation of the Indian Banks Association (IBA). The interest rates have been deregulated and left to the market forces of demand for; and supply of, short-term money as part of the financial sector reforms.
The call money market witnessed turbulence in the recent past when the rates shot up to as high as 130 per cent. The reasons for increase in volatility in the call money market, among others, include advance corporate tax payments, investors’ interest in primary and secondary capital markets including the units issued by mutual funds, large withdrawals on banks’ credit lines, imprudent practices of banks, and developments in the foreign exchange market. Banks were reported to have invested in government securities by borrowing on call to earn the spread when call rates were low.
Issuers, Instruments and Investors in Money Market
Issuer
Instrument
Issuance maturity
Investors
Central Government
GOI secs
2 to 10 years
Banks, LIC, GIC, UTI, FIs, FIIS,
MFs, MMMFs, PFs, pension
funds, corporates, NBFCs, & RBI
Central Government
T-bills
3 months
to 1 year
Banks, UTI, LIC, GIC, PFs,
MFs, MMMFs, pension funds, corporates, NBFCs & RBI
State Government
State
Government Securities
5 to 10 years
Banks, UTI, LIC, GIC, FIs, PFs,
MFs, MMMFs, pension funds, corporates & NBFCs.
Government Agencies
Government
Guaranteed Bonds
5 to 10 years
Banks, UTI, LIC, GIC, FIs, PFs,
MFs, MMMFs, pension funds, corporates & NBFCs.
PSUs
PSU
Bonds
5 to 10 years
Banks, UTI, LIC, GIC, FIs, MFs,
MMMFs, NBFCs & corporates
Private sector corporates
Corporate Debentures
1 to 12 years
UTI, other MFs, LIC, GIC, FIs,
MMMFs & corporates
Public & Private sector Corporates ,
Commercial paper
15 days to less than one year
Banks, MFs, FIs, MMMFs, & corporates
Banks and FIs
Certificates of deposit
3 months (banks)
1-3 years (FIs)
Banks, FIs, MFs, MMMFs, & corporates
(i) Money Market – MIBOR (Thomson Reuters)
Overnight Call Money rate in India is published by Reuters and known as “MIBOR’’(Mumbai Interbank Offered Rate) . MIBOR stands for overnight Call money rate in India which is getting fixed by Thomson Reuters every day. MIBOR is having an alternate leg which is known as OIS (Overnight Index Swaps). Overnight Index Swaps refers to hedging of local currency in local currency books and in local country which effectively means Hedging of INR denominated Assets/ (Liabilities) by an Indian Corporate in INR books and in India. OIS also means say Hedging of USD denominated Assets/ (Liabilities) by an American Corporate in USD books in NY markets.
(i) What is 'LIBOR'?
LIBOR i.e. (London Interbank Offered Rate) or ICE LIBOR (previously BBA LIBOR) is a benchmark rate that some of the world’s leading banks charge each other for short-term loans. It stands for Intercontinental Exchange London Interbank Offered Rate and serves as the first step to calculating interest rates on various loans throughout the world. LIBOR is administered by the ICE Benchmark Administration (IBA), and is based on five currencies: U.S. dollar (USD), Euro (EUR), pound sterling (GBP), Japanese yen (JPY) and Swiss franc (CHF), and serves seven different maturities: overnight, one week, and 1, 2, 3, 6 and 12 months. There are a total of 35 different LIBOR rates each business day. The most commonly quoted rate is the three-month U.S. dollar rate.
BREAKING DOWN 'LIBOR'
LIBOR (or ICE LIBOR) is the world’s most widely-used benchmark for short-term interest rates. It serves as the primary indicator for the average rate at which banks that contribute to the determination of LIBOR may obtain short-term loans in the London interbank market. Currently there are 11 to 18 contributor banks for five major currencies (US$, EUR, GBP, JPY, CHF), giving rates for seven different maturities. A total of 35 rates are posted every business day (number of currencies x number of different maturities) with the 3-month U.S. dollar rate being the most common one (usually referred to as the “current LIBOR rate”).
LIBOR or ICE LIBOR's primary function is to serve as the benchmark reference rate for debt instruments, including government and corporate bonds, mortgages, student loans, credit cards; as well as derivatives such as currency and interest swaps, among many other financial products.
For example, take a Swiss franc-denominated Floating-Rate Note (or floater) that pays coupons based on LIBOR plus a margin of 35 basis points (0.35%) annually. In this case, the LIBOR rate used is the one-year LIBOR plus a 35 basis point spread. Every year, the coupon rate is reset in order to match the current Swiss franc one-year LIBOR, plus the predetermined spread.
If, for instance, the one-year LIBOR is 4% at the beginning of the year, the bond will pay 4.35% of its par value at the end of the year. The spread usually increases or decreases depending on the credit worthiness of the institution issuing debt.
Another prominent trait of LIBOR or ICE LIBOR is that it helps to evaluate the current state of the world’s banking system as well as to set expectations for future central bank interest rates.
ICE LIBOR was previously known as BBA LIBOR until February 1, 2014, the date on which the ICE Benchmark Administration (IBA) took over the Administration of LIBOR. (Source : Investopedia)
The call money market witnessed turbulence in the recent past when the rates shot up to as high as 130 per cent. The reasons for increase in volatility in the call money market, among others, include advance corporate tax payments, investors’ interest in primary and secondary capital markets including the units issued by mutual funds, large withdrawals on banks’ credit lines, imprudent practices of banks, and developments in the foreign exchange market. Banks were reported to have invested in government securities by borrowing on call to earn the spread when call rates were low.
Issuers, Instruments and Investors in Money Market
Issuer
Instrument
Issuance maturity
Investors
Central Government
GOI secs
2 to 10 years
Banks, LIC, GIC, UTI, FIs, FIIS,
MFs, MMMFs, PFs, pension
funds, corporates, NBFCs, & RBI
Central Government
T-bills
3 months
to 1 year
Banks, UTI, LIC, GIC, PFs,
MFs, MMMFs, pension funds, corporates, NBFCs & RBI
State Government
State
Government Securities
5 to 10 years
Banks, UTI, LIC, GIC, FIs, PFs,
MFs, MMMFs, pension funds, corporates & NBFCs.
Government Agencies
Government
Guaranteed Bonds
5 to 10 years
Banks, UTI, LIC, GIC, FIs, PFs,
MFs, MMMFs, pension funds, corporates & NBFCs.
PSUs
PSU
Bonds
5 to 10 years
Banks, UTI, LIC, GIC, FIs, MFs,
MMMFs, NBFCs & corporates
Private sector corporates
Corporate Debentures
1 to 12 years
UTI, other MFs, LIC, GIC, FIs,
MMMFs & corporates
Public & Private sector Corporates ,
Commercial paper
15 days to less than one year
Banks, MFs, FIs, MMMFs, & corporates
Banks and FIs
Certificates of deposit
3 months (banks)
1-3 years (FIs)
Banks, FIs, MFs, MMMFs, & corporates
(i) Money Market – MIBOR (Thomson Reuters)
Overnight Call Money rate in India is published by Reuters and known as “MIBOR’’(Mumbai Interbank Offered Rate) . MIBOR stands for overnight Call money rate in India which is getting fixed by Thomson Reuters every day. MIBOR is having an alternate leg which is known as OIS (Overnight Index Swaps). Overnight Index Swaps refers to hedging of local currency in local currency books and in local country which effectively means Hedging of INR denominated Assets/ (Liabilities) by an Indian Corporate in INR books and in India. OIS also means say Hedging of USD denominated Assets/ (Liabilities) by an American Corporate in USD books in NY markets.
(i) What is 'LIBOR'?
LIBOR i.e. (London Interbank Offered Rate) or ICE LIBOR (previously BBA LIBOR) is a benchmark rate that some of the world’s leading banks charge each other for short-term loans. It stands for Intercontinental Exchange London Interbank Offered Rate and serves as the first step to calculating interest rates on various loans throughout the world. LIBOR is administered by the ICE Benchmark Administration (IBA), and is based on five currencies: U.S. dollar (USD), Euro (EUR), pound sterling (GBP), Japanese yen (JPY) and Swiss franc (CHF), and serves seven different maturities: overnight, one week, and 1, 2, 3, 6 and 12 months. There are a total of 35 different LIBOR rates each business day. The most commonly quoted rate is the three-month U.S. dollar rate.
BREAKING DOWN 'LIBOR'
LIBOR (or ICE LIBOR) is the world’s most widely-used benchmark for short-term interest rates. It serves as the primary indicator for the average rate at which banks that contribute to the determination of LIBOR may obtain short-term loans in the London interbank market. Currently there are 11 to 18 contributor banks for five major currencies (US$, EUR, GBP, JPY, CHF), giving rates for seven different maturities. A total of 35 rates are posted every business day (number of currencies x number of different maturities) with the 3-month U.S. dollar rate being the most common one (usually referred to as the “current LIBOR rate”).
LIBOR or ICE LIBOR's primary function is to serve as the benchmark reference rate for debt instruments, including government and corporate bonds, mortgages, student loans, credit cards; as well as derivatives such as currency and interest swaps, among many other financial products.
For example, take a Swiss franc-denominated Floating-Rate Note (or floater) that pays coupons based on LIBOR plus a margin of 35 basis points (0.35%) annually. In this case, the LIBOR rate used is the one-year LIBOR plus a 35 basis point spread. Every year, the coupon rate is reset in order to match the current Swiss franc one-year LIBOR, plus the predetermined spread.
If, for instance, the one-year LIBOR is 4% at the beginning of the year, the bond will pay 4.35% of its par value at the end of the year. The spread usually increases or decreases depending on the credit worthiness of the institution issuing debt.
Another prominent trait of LIBOR or ICE LIBOR is that it helps to evaluate the current state of the world’s banking system as well as to set expectations for future central bank interest rates.
ICE LIBOR was previously known as BBA LIBOR until February 1, 2014, the date on which the ICE Benchmark Administration (IBA) took over the Administration of LIBOR. (Source : Investopedia)
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