ZARONIA publication begins, JIBAR publication to continue in parallel
The SARB has been engaging market participants on the need for reform of interest rate benchmarks used locally. This review was catalysed by international recommendations around strengthening critical interest rates, which ultimately culminated in the decision to cease the publication of LIBOR. As mentioned in that communication, the SARB MPG has likewise taken a decision to cease the publication of JIBAR at some point in future. The South African Rand Overnight Index Average (ZARONIA) has been designated as the preferred successor rate that will most likely replace the JIBAR.
The publication of ZARONIA has now commenced, and ZARONIA data can be accessed on the SARB website. This publication represents a critical milestone in the journey away from JIBAR and provides a clear signal of intention, underpinned by significant work by the SARB and contributing banks.
It is important to note that, while ZARONIA is now technically available, it is being published for observation only. This means that there is no expectation that market participants actually commence referencing the rate in their transactions or exposures. In fact, the SARB has “strongly dissuaded” market participants from using ZARONIA until advised otherwise.
In addition to the publication of ZARONIA going forward, ZARONIA has been back-tested using a five-year sample of bona fide transactions collected from commercial banks and the results of the back-testing exercise were published in a feedback report in November 2021. Given ZARONIA’s designation as JIBAR’s likely successor rate, back-testing was necessary to ensure that the conceptual design of ZARONIA was rigorously tested to ensure its robustness, reliability and stability. The success of JIBAR transition will ultimately depend on the uptake of the successor rate, and it is important that market participants start engaging with the information that has been made available. This will also enable market participants to advocate more thoroughly and effectively as transition progresses. We would note that, although it is the intention that JIBAR publication will cease indefinitely in future, the SARB has indicated that JIBAR will continue to be made available in parallel with the new rate for a limited and yet unknown period, to avoid cliff-edge effects.
At this stage, we would encourage market participants to familiarise themselves with ZARONIA and its behaviour over time through both the publication of the daily rate and historical back-testing results, and to start considering how they will strategically respond to transition internally. We would also reiterate our encouragement to market participants to become involved in relevant industry associations to help shape transition efforts locally.