Understanding Johannesburg Interbank Average Rate (JIBAR)

The Johannesburg Interbank Average Rate (JIBAR) is a crucial money market rate utilized in South Africa. It serves as the benchmark for short-term loans and instruments, available in one-month, three-month, six-month, and 12-month discount terms.
Among these, the 3-month JIBAR rate is the most widely accepted and used. Borrowers in South Africa, whether individuals or businesses, are typically quoted a rate that is tied to the three-month JIBAR. For instance, a borrower seeking a mortgage might receive a quote such as ‘JIBAR + 7%.’ As money market rates rise, so does the cost of borrowing, and conversely, as rates fall, borrowing costs decrease.

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Key takeaways include that JIBAR is the benchmark for short-term interest rates in South Africa, derived from bid and offer rates of eight major banks. It is available in terms from one to 12 months, with the three-month rate being the most common reference. JIBAR rates are applied to set bank certificate of deposit rates, loan rates, and futures contract rates.

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The Johannesburg Interbank Average Rate (JIBAR) is calculated daily by the Johannesburg Stock Exchange for various discount terms after receiving all bid and offer rates from participating banks. It is used by banks to buy and sell Negotiable Certificates of Deposit (NCDs). The calculation involves a mid-rate derived from the bid and offer rates submitted by eight banks that deal with NCDs of at least 100 million rands. The highest and lowest mid-rates are discarded, and the remaining four are averaged to determine JIBAR.

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JIBAR not only represents NCD rates but also, to a lesser extent, reflects the cost of funding in the foreign exchange (FX) forward and the domestic market for fixed bank deposits.

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JIBAR Futures (STIR) are short-term interest rate futures contracts with the three-month Johannesburg Interbank Average Rate as the underlying instrument. The value of this exchange-traded contract at expiration is 100 minus the three-month JIBAR rate at the expiry date.

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The contract is an efficient way to gain exposure to the South African interest rate market. It 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.
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. The value of the STIR contract decreases as the expected three-month JIBAR rate at futures expiry increases.

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

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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.

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