The South African Reserve Bank’s (SARB’s) initial assessment of the comments received on the proposals for the reform of key interest rate benchmarks used in South Africa is that there is broad-based in-principle support for the recommended reforms.
This follows after the SARB in August embarked on a consultation process to gather input on proposals for the reform of key interest rate benchmarks. The ‘Consultation paper on selected interest rate benchmarks in South Africa’ was, subsequently, published for public comment until November 30.
The comments received include that there is general agreement that the current calculation of the Johannesburg Interbank Average Rate (Jibar) should be phased out over time, and that interest rate benchmark calculations should be based on actual transactions.
The SARB says there is also general acceptance that risk-inclusive reference rates should be used for the pricing of unsecured on-balance sheet (Jibar-linked) items and that risk-free reference rates should be used for derivative contracts.
The comments indicate that there is support for the reform of the South African Benchmark Overnight Rate (Sabor), including the proposed Sabor Money Market, as well as the introduction of the South African Rand Interbank Overnight Rate (ZARibor).
The SARB notes that there is limited support for the government bond repurchase rate as the secured overnight rate for the derivative market, owing to current deficiencies in the domestic market for buy- and sell-back transactions.
As part of developing an implementation paper to be released during the second quarter of 2019, the SARB will consider all the responses in detail in consultation with the Market Practitioners’ Group (MPG).
The MPG is a public-private sector body, comprising members of the SARB, the Financial Sector Conduct Authority (FSCA), the Banking Association of South Africa, the Association of Corporate Treasurers of South Africa and the Association of Savings and Investment South Africa.
The primary purpose of the MPG will be to facilitate final decisions on the choice of interest rate benchmarks to be used as reference interest rates for financial and derivative contracts, as well as to provide input to the SARB and the FSCA on the operationalisation of the interest rate benchmark proposals.