The South African Reserve Bank (SARB) has published the Technical Specification Paper (TSP) report on public comments received on the draft statement of methodology and policies governing the SARB-administered interest rate benchmarks.
In a statement, the SARB said the report, titled ‘Feedback on the draft statement of methodology and policies governing the SARB-administered interest rate benchmarks’, contained summarised results obtained from back-testing the proposed benchmarks contained therein using historical transactions data.
It said the TSP marked an important step in the multi-year process of transforming widely used interest rate benchmarks in South Africa.
The TSP, which was published on Tuesday, detailed the calculation methodologies, contingency arrangements and policies for four new benchmarks as well as the reformed version of the South African Benchmark Overnight Rate (SABOR).
The benchmarks included:
South African Rand Interbank Overnight Rate (ZARIBOR);
South African Secured Overnight Financing Rate (ZASFR);
South African Rand Overnight Index Average (ZARONIA);
Term Wholesale Financial Corporate Fixed Deposit Benchmark Rate; and
Term Wholesale Non-Financial Corporate Fixed Deposit Benchmark Rate
The central bank said some of the proposed benchmarks would play a major role in the reform of reference interest rates in the South African financial markets.
ZARONIA is the reformed version of SABOR and would therefore most likely replace the benchmark in due time. Furthermore, the Market Practitioners Group (MPG) had designated ZARONIA as the preferred successor to replace the Johannesburg Interbank Average Rate (Jibar).
“Since Jibar currently underpins a significant number of financial contracts, it was deemed critical that the conceptual design of ZARONIA be rigorously tested to ensure that it was reliable, robust and sufficiently stable.
“The SARB collected five-year historical transactions data from the four largest commercial banks and JSE Limited to enable the back-testing of the proposed benchmarks. The main objective was to calculate the historical benchmark rates, to observe their behaviour and examine whether the parameters that guide their calculation are appropriate. Furthermore, the collected data allowed the SARB to evaluate if the contingency arrangements specified for each benchmark were likely to suffice in the event where the normal calculation methodologies could not be applied.”
The SARB thanked all stakeholders for their participation in the reference rate reform project.
It said the feedback provided to the draft TSP, together with the outcomes of the benchmark back-testing exercise, had informed revisions to the draft TSP.
The central bank said the outcome of the exercise would inform further deliberations of the MPG as it makes its final decisions on the successor rate.
“The final TSP will be published in due course and is expected to coincide with the beginning of the observation period for ZARONIA, at which time the rate will be published daily,” it said.
Source: South African Government News Agency