The South African Reserve Bank (SARB) has announced that the Johannesburg Interbank Average Rate (JIBAR) will be discontinued next year and replaced by a new system.
The SARB said that JIBAR will be replaced immediately after its final publication on 31 December 2026.
The country will then move to the South African Rand Overnight Index Average (ZARONIA), which it said marks the “most significant reform of the country’s financial markets in decades.”
Standard Bank stated that the fundamental differences between the two rates will represent a significant shift in pricing, valuation, and legal contracting terms when transitioning to the new systems.
ZARONIA represents the interest rate at which commercial banks borrow rand-denominated overnight wholesale funds.
It is based on actual transactions and calculated as a trimmed, volume-weighted mean of interest rates paid on eligible unsecured overnight deposits.
While ZARONIA is backwards-looking, JIBAR is forward-looking and relies on indicative pricing submissions from a selected bank panel.
The introduction of ZARONIA eliminates the subjectivity of JIBAR and offers a stable, data-driven rate that reflects the true cost of overnight borrowing.
The SARB stated that JIBAR had several structural weaknesses, in addition to a sustained decline in the market that underpinned it.
This created vulnerabilities that cannot be resolved in the foreseeable future.
In 2022, the SARB and the Market Practitioners Group (MPG) designated ZARONIA as the preferred successor rate to JIBAR.
The MPG has since worked closely with regulators, market infrastructure providers and industry associations to ensure a smooth transition to ZARONIA.
To assist market participants, the MPG produced reference materials, including recommended market conventions, fallback language and the JIBAR transition plan.
Market participants have been encouraged to accelerate their transition efforts and make sure that all relevant financial contracts incorporate appropriate fallback provisions.
Participants will need to replace their reliance on JIBAR and ensure that they are ready to use ZARONIA.
Big changes for Reserve Bank
The change to ZARONIA highlights just one of the several major changes led by the SARB.
This includes the lower inflation target in South Africa, with the SARB, especially Governor Lesetja Kganyago, pushing for a lower target for over a year.
While the SARB is responsible for achieving an inflation target, it is actually the Minister of Finance who sets the target.
The SARB called for the 3% to 6% target range to be lowered, and had preemptively decided to anchor expectations to 3%.
Finance Minister Enoch Godongwana then decided to lower the target to 3% in the medium-term budget, allowing for one percentage point swings in either direction.
The Reserve Bank has argued that a lower inflation rate will result in lower interest rates in the long term, given the nation’s already high real interest rates.
These potential cuts will add to the 125 basis points worth of cuts from the SARB over the last 15 months, which took the repo rate to 6.75%.
Outside of interest rates, the SARB also acquired 50% of PayInc, formerly BankservAfrica, to help modernise the national payment system.
