Johannesburg Interbank Average Rate (JIBAR) in South Africa

What Is the Johannesburg Interbank Average Rate (JIBAR)?

The Johannesburg Interbank Average Rate (JIBAR) is the money market rate that is used in South Africa. The benchmark for short-term loans and instruments, the rate comes in one-month, three-month, six-month, and 12-month discount terms. The 3-month JIBAR rate is the most widely used and accepted.

An individual or business that seeks to borrow money from a South African bank will typically be quoted a rate tied to the three-month JIBAR, the most commonly used. For example, the rate quoted to a borrower looking to get a mortgage may be ‘JIBAR + 7%.’ As rates in the money market increase, the cost of borrowing also increases, and vice versa.

Understanding the Johannesburg Interbank Average Rate (JIBAR)

Today, the Johannesburg Interbank Average Rate (JIBAR) is used 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 local and international banks. JIBAR is calculated as a yield and then converted into a discount.

The rate is calculated daily by the Johannesburg Stock Exchange for one-month, three-month, six-month, and 12-month discount terms after all bid and offer rates are received by participating banks. The derived rate is then used by banks to buy and sell their own Negotiable Certificates of Deposit (NCDs).

The bid and offer rates used to calculate JIBAR are submitted by eight banks that transact with NCDs of at least 100 million rands (the South African currency). A mid-rate is calculated as a halfway point between the bid and offer rates provided by contributors. The two highest and two lowest mid-rates are discarded, and the remaining four mid rates are averaged to arrive at JIBAR.

While JIBAR represents NCD rates, it also represents, to a lesser extent, the cost of funding in the foreign exchange (FX) forward and the domestic market for fixed bank deposits.

Johannesburg Interbank Average Rate (JIBAR) and Derivatives

JIBAR is also an important tool 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 way to gain exposure to the South African interest rate market and can be utilized by hedgers seeking protection against adverse interest rate movements and speculators hoping to take advantage of short-term movements in interest rates.

The value of the STIR contract decreases as the expected three-month JIBAR rate at futures expiry increases. When interest rates are expected to go up, an investor or trader will short the contract. Investors go long the contract when they believe interest rates will decrease at some point in the future.

Example of the Johannesburg Interbank Average Rate (JIBAR)

The calculation of a South African reference rate started in the 1990s with the South African Futures Exchange (Safex) Bank Bill rate. The current reference rate system was established in 1999. Prior to November 2012, the acronym stood for the Johannesburg Interbank Agreed Rate.

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

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