Johannesburg Interbank Average Rate (JIBAR)

What Is the Johannesburg Interbank Average Rate (JIBAR)?

The Johannesburg Interbank Average Rate (JIBAR) is the money market rate that is utilized in South Africa. The benchmark for short-term loans and instruments, the rate comes in one-month, three-month, half year, and year discount terms. The 3-month JIBAR rate is the most widely utilized and accepted.

An individual or business that looks to borrow money from a South African bank will typically be quoted a rate tied to the three-month JIBAR, the most generally utilized. For instance, the rate quoted to a borrower hoping to get a mortgage might be 'JIBAR + 7%.' As rates in the money market increase, the cost of borrowing likewise increases, and vice versa.

Figuring out the Johannesburg Interbank Average Rate (JIBAR)

Today, the Johannesburg Interbank Average Rate (JIBAR) is utilized as the benchmark for short-term interest rates in the South African markets. It is determined as an average of the borrowing and lending rates indicated by a number of neighborhood and international banks. JIBAR is calculated as a yield and afterward changed over into a discount.

The rate is calculated daily by the Johannesburg Stock Exchange for one-month, three-month, half year, and year discount terms after all bid and offer rates are received by participating banks. The derived rate is then utilized by banks to buy and sell their own Negotiable Certificates of Deposit (NCDs).

The bid and offer rates used to work out JIBAR are presented by eight banks that execute with NCDs of something like 100 million rands (the South African currency). A mid-rate is calculated as a midpoint between the bid and offer rates given by donors. The two highest and two lowest mid-rates are disposed of, and the leftover four mid rates are averaged to show up at JIBAR.

While JIBAR addresses NCD rates, it likewise addresses, less significantly, the cost of funding in the foreign exchange (FX) forward and the domestic market for fixed bank deposits.

6.8%

The three-month JIBOR as of Jan. 2, 2020

Johannesburg Interbank Average Rate (JIBAR) and Derivatives

JIBAR is likewise an important device in the interest rate derivatives market. JIBAR Futures (STIR) are short-term interest rate futures contracts which have the three-month Johannesburg Interbank Average Rate as the underlying instrument. This exchange-traded contract has a value at its expiration of 100 minus the three-month JIBAR rate at the expiry date. The contract is an efficient method for gaining exposure toward the South African interest rate market and can be used by hedgers seeking protection against adverse interest rate developments and examiners wanting to exploit short-term developments in interest rates.

The value of the STIR contract diminishes as the expected three-month JIBAR rate at futures expiry increases. At the point when interest rates are expected to go up, an investor or trader will short the contract. Investors go long the contract when they accept interest rates will diminish eventually.

Illustration of the Johannesburg Interbank Average Rate (JIBAR)

The calculation of a South African reference rate began during the 1990s with the South African Futures Exchange (Safex) Bank Bill rate. The current reference rate system was laid out in 1999. Prior to November 2012, the abbreviation represented the Johannesburg Interbank Agreed Rate.

As per the South African Reserve Bank, the three-month JIBOR averaged 8.19% from 1999 until 2020, arriving at an all-time high of 16.96% in February 1999 and a record low of 5.06% in September 2012.

The current JIBAR rate is accessible daily from Thomson Reuters and Bloomberg.

Other equivalent short-term reference rates incorporate the London Interbank Offered Rate (LIBOR), Euro Interbank Offered Rate (EURIBOR), Nigerian Interbank Offered Rate (NIBOR), Norwegian Inter-Bank Offered Rate (NIBOR), and so on.

Highlights

• JIBAR rates are utilized in setting bank certificate of deposit rates, loan rates, and futures contract rates.
• The Johannesburg Interbank Average Rate (JIBAR) is the benchmark for short-term interest rates in South Africa.
• Derived from the bid and offer rates from eight major banks, JIBAR comes in terms going from one to 12 months, with the three-month rate the most regularly utilized reference.