LIBOR

Indian Economy glossary

Also called: London Interbank Offered Rate · Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Beyond NCERT

Meaning

LIBOR (London Interbank Offered Rate) was the global benchmark rate for loans between banks. It was based on rates that banks themselves reported, not on actual deals. From 2012, banks were caught rigging (manipulating) it. It was phased out by June 2023. Since then, benchmarks have moved to rates based on actual secured transactions, such as the US SOFR (Secured Overnight Financing Rate).

Example

India had a benchmark called MIFOR that was linked to LIBOR. When LIBOR ended, MIFOR was replaced by MMIFOR (Modified MIFOR). Loans and swaps priced off LIBOR worldwide had to switch to new benchmarks like SOFR.

Don't confuse with

  • MIBOR: MIBOR is India's benchmark for overnight interbank lending, published by FBIL. It is still in use. LIBOR was a global benchmark and has been discontinued.
  • SOFR: SOFR is based on actual secured overnight deals. LIBOR was based on rates banks reported.

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