Publication of a report on benchmark interest rates administered by the SARB

The South African Reserve Bank (SARB) released the Technical Specification Paper (TSP) on public comments received on the draft methodology and policy statement governing benchmark interest rates administered by SARB.

In a statement, the SARB said the report, titled “Comments on the Draft Statement of Methodology and Policies Governing Interest Rate Benchmarks Administered by the SARB,” contained summary results obtained from the report. back-testing of the proposed benchmarks contained therein using historical transaction data.

He said the TSP marks an important step in the multi-year process of transforming the benchmark interest rates widely used in South Africa.

The TSP, which was released on Tuesday, detailed calculation methodologies, contingency arrangements and policies for four new benchmarks as well as the reformed version of the South African Overnight Benchmark Rate (SABOR).

The benchmarks included:

South African Rand overnight interbank rate (ZARIBOR);

Secure overnight financing rate in South Africa (ZASFR);

Average of the night index of the South African Rand (ZARONIA);

Reference rate for fixed deposits of companies in wholesale financial services at term; and

Reference rate for fixed deposits of wholesale non-financial companies at term

The central bank said some of the proposed benchmarks would play a major role in reforming benchmark interest rates in South African financial markets.

ZARONIA is the reformed version of SABOR and would therefore most likely replace the benchmark in due course. In addition, the Market Practitioners Group (MPG) had appointed ZARONIA as the preferred successor to replace the Johannesburg Interbank Average Rate (Jibar).

“Given that Jibar currently underpins a significant number of financial contracts, it was deemed essential that the conceptual design of ZARONIA be rigorously tested to ensure that it is reliable, robust and sufficiently stable.

“The SARB has collected historical transaction data over five years from the four largest commercial banks and JSE Limited to enable back-testing of the references offered. The main objective was to calculate historical benchmarks, observe their behavior and examine whether the parameters that guide their calculation are appropriate. In addition, the data collected allowed the SARB to assess whether the emergency arrangements specified for each reference were likely to be sufficient in the event that normal calculation methodologies could not be applied. “

The SARB thanked all stakeholders for their participation in the benchmark rate reform project.

He said that the comments provided to the draft TSP, as well as the results of the post-reference check exercise, had informed the revisions to the draft TSP.

The central bank said the outcome of the exercise would inform further deliberations by the MPG as it makes its final decisions on the replacement rate.

“The final TSP will be released in due course and is expected to coincide with the start of the observation period for ZARONIA, when the rate will be released daily,” he said.

(With contributions from the South African government press release)


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