What Is the Johannesburg Interbank Average Rate
The Johannesburg Interbank Average Rate (JIBAR) is the money market rate that is used in South Africa. The rate comes in one-month, three-month, six-month, and 12-month discount terms.
Understanding Johannesburg Interbank Average Rate (JIBAR)
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 1 month, 3 month, 6 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 rand (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.
An individual or business that seeks to borrow money from a bank will typically be quoted a rate tied to the 3-month JIBAR. 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.
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 expiry of 100 minus the 3-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 3-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.
The JIBAR rate is available daily from Thomson Reuters and Bloomberg. 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.