South African Reserve Bank publishes Market Practitioners Group recommendation for Jibar fallbacks based on compounded ZARONIA and a five-year median spread

The South African Reserve Bank has published a Market Practitioners Group (MPG) paper setting out recommended fallback credit adjustment spreads to support the transition from the Johannesburg Interbank Average Rate (Jibar) to the South African Rand Overnight Index Average (ZARONIA). The MPG endorses an International Swaps and Derivatives Association (ISDA)-aligned approach in which a Jibar fallback rate is calculated as compounded ZARONIA plus a spread intended to address structural differences between the benchmarks. The proposed spread is the historical median of the difference between Jibar and compounded ZARONIA over a five-year lookback period, consistent with ISDA’s standard derivatives fallback methodology. The analysis used published and proxy ZARONIA data back to 4 January 2016 and assessed the impact of changes in the South African Reserve Bank’s Monetary Policy Implementation Framework since June 2022, interest rate cycles and the COVID stress period, concluding there was no material reason to deviate from the ISDA approach. As an illustration, five-year median spreads calculated as at 5 August 2024 were 15 basis points for 1-month Jibar and 19 basis points for 3-month Jibar, with market exposure noted as concentrated in 3-month Jibar. A formal announcement on Jibar cessation is expected in December 2025, which would serve as the trigger date for fixing credit adjustment spreads, subject to earlier fixing if Jibar is declared non-representative. ISDA has indicated it is willing to add Jibar fallbacks with ZARONIA under the 2021 ISDA Interest Rate Derivative Definitions and create a Jibar fallback protocol for legacy transactions, with the MPG signalling a preference for protocol-based adoption to avoid bilateral renegotiation of covered contracts.