MIFOR: meaning, history and the move to Modified MIFOR

Companies that borrow in US dollars but earn in rupees need a way to manage interest rates across both currencies. For years, a benchmark called MIFOR helped with this. This page explains what it was, why it changed and how its replacement works.

Quick answer

MIFOR, the Mumbai Interbank Forward Outright Rate, was a rupee interest rate benchmark built by combining the US dollar LIBOR rate with the forward premium in the rupee-dollar market. It was used mainly in rupee interest rate swaps for firms with foreign currency exposure. After USD LIBOR ended, FBIL stopped publishing MIFOR after 30 June 2023 and moved to Modified MIFOR, which uses an adjusted SOFR rate instead.

Key takeaways

• It combined a US dollar rate with the rupee forward premium.
• The full name is Mumbai Interbank Forward Outright Rate.
• It was used in swaps by firms with dollar and rupee exposure.
• Publication of the old rate stopped after 30 June 2023.
• Modified MIFOR now uses adjusted SOFR plus forward premia.

What was MIFOR?

MIFOR stands for Mumbai Interbank Forward Outright Rate. It is sometimes written as 'Mumbai Interbank Forward Offer Rate', but FBIL's name for it uses 'Outright'. It gave an implied rupee interest rate for terms such as one month, three months and six months.

The idea comes from how forward exchange rates work. If you add the US dollar interest rate to the forward premium (the extra cost of buying dollars for a future date), you get an implied rupee rate. The old benchmark used USD LIBOR as the dollar rate.

Who used it?

Indian companies with US dollar loans, such as external commercial borrowings, and banks dealing with them used swaps linked to this rate. These helped them convert interest costs between dollar and rupee terms, or hedge both interest rate and currency forward risk.

Along with MIBOR-based swaps, these swaps made up an important part of India's rupee interest rate derivatives market.

Why did MIFOR change?

US dollar LIBOR, a core input, was phased out globally after manipulation scandals and thin interbank lending. Its standard panel version ended after 30 June 2023. Without LIBOR, the old formula could not continue.

FBIL received approval to stop publishing the old rate after 30 June 2023. Outstanding cleared trades at CCIL that reset after that date were moved to the new benchmark, with a spread to keep values fair.

How does Modified MIFOR work?

Modified MIFOR combines FBIL's forward premia curve with an adjusted SOFR rate. Because SOFR is compounded over the period, Modified MIFOR is known only at the end, in arrears. The RBI listed it among FBIL's significant benchmarks from 1 July 2023.

For any older contract, it is important to check which version applies, because legacy MIFOR, adjusted MIFOR and Modified MIFOR can give different results.

Frequently Asked Questions