The new benchmark will be based on secured money market transactions – Market Repo and Tri Party Repo (TREPS). Together, they account for 98% of the overnight money markets and include the participation of both banks and non-banks.
SORR will, therefore, be more representative of the overnight market funding rate than the call money market.
“The index we will have now will capture all the secured transactions,” Deputy Governor Michael Debbrata Parta said in response to ET’s query at a post-policy media interaction on Friday.
The RBI’s decision to introduce this was based on the recommendations of the Committee on Mumbai Interbank Outright Rate (MIBOR) benchmark which reviewed the interest rate benchmark in India.
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The committee headed by RBI Executive Director Ramanathan Subramanian observed that benchmarks based on these collateralized transactions are also likely to be more robust and less sensitive and hence better suited as benchmarks for interest rate derivatives used for hedging purposes.
SORR will eventually replace MIBOR, which has been in place since 1998.
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