What does the Johannesburg Interbank Average Rate (JIBAR) stand for?
People in South Africa use the Johannesburg Interbank Average Rate (JIBAR) as their money market rate. The discount terms for this rate are one month, three months, six months, and twelve months. It is the standard for short-term loans and instruments. Most people agree on and use the 3-month JIBAR rate.
Borrowing money from a South African bank usually comes with a rate based on the three-month JIBAR, the most common rate. For example, “JIBAR + 7%” might be the rate given to someone who wants to get a mortgage. It costs more to borrow money when rates on the money market go up and vice versa.
How the Johannesburg Interbank Average Rate (JIBAR) Works
From now on, short-term interest rates in South Africa are based on the Johannesburg Interbank Average Rate (JIBAR). You can find it by taking the average of the interest rates that several local and foreign banks offer on loans and borrowing. When you figure out JIBAR as a return, you change the price.
Discount terms are one month, three months, six months, and twelve months. The Johannesburg Stock Exchange figures out the rate every day after receiving all bids and offers from participating banks. Banks then use the rate they came up with to buy and sell their own negotiable certificates of deposit (NCDs).
JIBAR is based on the bid and offer rates sent in by eight banks that deal in NCDs worth at least 100 million rands (South African currency). Finding a mid-rate means finding a rate that is halfway between the bid and offer rates that donors supplied. We throw away the two highest and two lowest mid-rates. Then, we take the average of the four surviving mid-rates to get JIBAR.
To a lesser extent, JIBAR also shows the cost of borrowing in the foreign exchange (FX) forward market and the local market for fixed bank deposits. It shows NCD rates.
The Johannesburg Interbank Average Rate (JIBAR) and Its Variants
In the market for interest rate swaps, JIBAR is also a useful tool. JIBAR Futures (STIR) are short-term interest rate futures contracts that are based on the three-month Johannesburg Interbank Average Rate. This exchange-traded contract will be worth 100 less than the three-month JIBAR rate on the date it expires. This contract makes it easy to get into the South African interest rate market. Hedgers who want to protect themselves against lousy interest rate changes can use it, as can traders who want to profit from short-term changes in interest rates.
As the expected three-month JIBAR rate at futures expiration goes up, the value of the STIR contract goes down. People who buy or trade will “short” the contract when they think interest rates will go up. People who want to invest money do so when they think that interest rates will go down in the future.
This is an example of the Johannesburg Interbank Average Rate (JIBAR).
It began with the South African Futures Exchange (Safex) Bank Bill rate in the 1990s to figure out a South African reference rate. From 1999 to the present, the present reference rate scheme has been in place. Before November 2012, it stood for the Johannesburg Interbank Agreed Rate.
The South African Reserve Bank says that the three-month JIBOR averaged 8.19 percent from 1999 to 2020. It hit a high point of 16.96 percent in February 1999 and a low point of 5.06% in September 2012. You can get the latest JIBAR rate every day from Thomson Reuters and Bloomberg.
The London Interbank Offered Rate (LIBOR), the Euro Interbank Offered Rate (EURIBOR), the Nigerian Interbank Offered Rate (NIBOR), the Norwegian Inter-Bank Offered Rate (NIBOR), and other rates are also short-term reference rates that are the same.
Conclusion
- In South Africa, short-term interest rates are based on the Johannesburg Interbank Average Rate (JIBAR).
- JIBAR is based on the bid and offer rates from eight big banks. It comes in terms of one to twelve months, but the three-month rate is the one that is most often used.
- Set rates for bank CDs, loans, and futures contracts using JIBAR rates.
