SARB releases interest rate benchmark reform report

‘Key takeaways’ from public comments on proposals for reforming interest rate benchmarks and the South African Reserve Bank’s (SARB’s) response to each were released on Friday 24 May 2019 in a report that will not only inform ongoing engagements but also decisions taken by the market practitioners’ group and its workstreams. This is according to an accompanying media statement, CompliNEWS contributor Pam Saxby notes. Among other things, the statement confirms that, ‘in the fourth quarter of 2019’, the SARB intends publishing a technical specification paper spelling out the suite of new interest rate benchmarks to be phased in ‘over the next couple of years’, an indicative timeframe for each and transitional arrangements.

The ‘expanded suite of interest rate benchmarks’ likely to emerge from this process is expected to improve monetary policy implementation and transparency – and enhance the SARB’s ability to analyse and monitor financial stability conditions across domestic markets. Against that backdrop, the SARB ‘strongly recommends’ phasing out and eventually replacing the Johannesburg interbank average rate (Jibar) ‘as soon as reasonably practicable’ given associated ‘challenges’. In prioritising this, the market practitioners’ group and its work streams are expected to develop an ‘interim solution’ that will make the Jibar ‘more robust and reliable’ as a reference rate. In the SARB’s view, a reformed Jibar should be ‘constituted purely with non-bank financial corporate deposits’. Any alternative to this would need to be International Organisation of Securities Commissions complaint.