Question

Write a short story about 'Benchmark Interest Rate' [Class 12]

Answer 1

Answer:

Explanation:

Antecedents…

Earlier, in October 2017, a committee set up by the RBI recommended linking bank lending rates to a market benchmark –– a move aimed at passing on monetary policy benefits faster. The panel—headed by Janak Raj, principal adviser, monetary policy department—suggested that all floating rate loans could be referenced to one of the three external benchmarks. RBI has been talking about it for some time. In its latest monetary policy in February, RBI proposed tointroduce a regulatory framework for financial benchmarks.

What SBI did

The State Bank of India was the first bank to announce linking of its interest rates on deposits and loans to an external benchmark from May 1, 2019. This means, whenever the RBI announces a change in repo rate, it will automatically reset SBI’s interest rates. In savings account, with deposits balances above Rs 1 lakh, the effective interest rate will be 275 basis points .

Answer 2

Short Stroy on 'Benchmark Interest Rate'

• It is also called 'Base interest rate' which is set by the banks to collect interest from its customers for different types of Credit borrowing. Even in case of securities Benchmark interest rates play a significant role.
• In the case of India, we have two Benchmark rates. They are MIBOR and MIBID.  
• MIBOR - Mumbai Interbank Offer Rate is the rate at which the Lender offers loan and MIBID - Mumbai Interbank Bid Rate is the rate in which the borrower seeks a loan.
• These are the two rates that are used to settle financial obligations. These are most useful in the field of derivate markets which account for Shares, commodities, and Bonds.

To learn more

What is monetary policy

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Who frames the monetary policy of India?

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