Background of the JIBAR to ZARONIA transition in South Africa
The highly publicised irregularities relating to the production of interbank offered rates (IBORs) in 2012 prompted a global regulatory response to reform major interest rate benchmarks. The use of IBORs within financial markets has subsequently reduced substantially in favour of more robust alternative reference rates (ARRs), namely overnight reference rates (ONRRs) that are near risk-free.
The global financial market has recently successfully completed the transition away from Libor, with 31 Libor settings having now ceased permanently. South Africa has also embarked on a transition journey with the release of a consultative paper prepared by the South African Reserve Bank (SARB), detailing its initial proposal to reform domestic benchmark and reference rates.
Reforming South Africa's interest rate
The SARB subsequently formed the MPG in 2019 to manage the process of adoption and transition to a new overnight interest rate, the South African Rand Overnight Index Average (ZARONIA). The MPG is a joint public and private sector body, comprising representatives from the SARB, the Financial Sector Conduct Authority (FSCA) and senior professionals from a variety of market interest groups active in the domestic capital and loan markets. Through its various publications and statements to the market, the SARB has expressed that the discontinuation of JIBAR is a certainty and that market participants should take appropriate action to transition away from JIBAR.
ZARONIA Adoption
On 2 November 2022, the SARB commenced publishing ZARONIA primarily to allow market participants to observe its performance and consider the implications of adopting it as a replacement for the Johannesburg Interbank Average Rate (Jibar). The observation period ended on 3 November 2023. Certain observation period statistics have been restated to reflect revisions that were processed post their publication. Market participants may use ZARONIA as a reference rate in financial contracts.
The Market Practitioners Group has designated ZARONIA as the successor rate to replace Jibar.
ZARONIA reflects the interest rate at which rand denominated overnight wholesale funds are obtained by commercial banks. It is based on actual transactions and calculated as a trimmed, volume-weighted mean of interest rates paid on eligible unsecured overnight deposits. ZARONIA is published every South African business day at 10:00. The benchmark rate may be republished at any time before 12:00 in the event that an error is discovered after the standard publication of the benchmark at 10:00. The calculation methodology and policies governing ZARONIA are prescribed in the Technical Specification Paper.