What Is the Johannesburg Interbank Average Rate (JIBAR)?
The Johannesburg Interbank Average Rate (JIBAR) is the pivotal money market rate utilized in South Africa. Serving as the benchmark for short-term loans and instruments, JIBAR caters to one-month, three-month, six-month, and 12-month discount terms, with the three-month JIBAR rate being the most prevalent.
When individuals or businesses seek loans from South African banks, they are often quoted a rate linked to the three-month JIBAR. For instance, a borrower may receive a mortgage rate quoted at ‘JIBAR + 7%.’ As money market rates rise, the cost of borrowing also escalates, and the reverse holds true.
Key Takeaways
- The Johannesburg Interbank Average Rate (JIBAR) serves as the benchmark for short-term interest rates in South Africa.
- JIBAR is derived from bid and offer rates provided by eight major banks and is available in one-month to 12-month terms, with three-month rates being the standard reference.
- JIBAR influences bank certificate of deposit rates, loan rates, and futures contract rates.
Understanding the Johannesburg Interbank Average Rate (JIBAR)
Today, JIBAR stands as the cornerstone benchmark for short-term interest rates within South African money markets. Derived from an average of borrowing and lending rates offered by both local and international banks, it is computed as a yield and subsequently converted into a discount.
This rate is calculated daily by the Johannesburg Stock Exchange and is applicable for terms of one-month, three-month, six-month, and 12-month discounts after relevant bid and offer rates are received from participating banks. Eventually, this derived rate is harnessed by banks transacting in their own Negotiable Certificates of Deposit (NCDs).
Bid and offer rates for deriving JIBAR are submitted by eight banks, which deal with NCDs of at least 100 million South African rands. Mid-rates calculated as the mean of the bid and offer prices are averaged after eliminating the two highest and lowest mid-rates, resulting in the JIBAR rate.
Though JIBAR primarily reflects NCD rates, it also subtly indicates funding costs in both the foreign exchange (FX) forward and domestic fixed deposit markets.
6.8%
The three-month JIBAR rate as of Jan 2, 2020.
Johannesburg Interbank Average Rate (JIBAR) and Derivatives
JIBAR also plays a critical role in the market for interest rate derivatives. JIBAR Futures (STIR) represent short-term interest rate futures anchored to the three-month JIBAR rate. These exchange-traded contracts are valued at 100 minus the three-month JIBAR rate upon their expiration. This enables investors and traders to either hedge or speculate efficiently within South African interest rate markets.
The value of a STIR contract diminishes as the expected three-month JIBOR rate at expiration rises. Investors would short the contract if they anticipate interest rate hikes, and go long if they foresee declining rates.
Example of the Johannesburg Interbank Average Rate (JIBAR)
The establishment of a South African reference rate originates in the 1990s, initiated by the Safex Bank Bill rate, with the inclusive reference rate system starting in 1999. Before November 2012, JIBAR stood for the Johannesburg Interbank Agreed Rate.
According to the South African Reserve Bank, the three-month JIBAR averaged 8.19% between 1999 and 2020, hitting a peak of 16.96% in February 1999 and a low of 5.06% in September 2012. Current JIBAR rates are accessible daily via Thomson Reuters and Bloomberg.
Equivalent short-term reference rates include the London Interbank Offered Rate (LIBOR), Euro Interbank Offered Rate (EURIBOR), Nigerian Interbank Offered Rate (NIBOR), and the Norwegian Inter-Bank Offered Rate (NIBOR), amongst others.
Related Terms: LIBOR, EURIBOR, NIBOR, interest rate derivatives, Negotiable Certificates of Deposit.
