If you’d never previously heard of Jibar (the Johannesburg Interbank Average Rate) or Zaronia (the South African Rand Overnight Index Average), you’d be forgiven for thinking they sound like prescription medications or swanky cocktail lounges. In reality, they are two interest rate benchmarks at the centre of one of the biggest changes to South Africa’s financial markets in decades. In fact, the change being made might have more of an impact on your cash than the current Iran war.
For years, Jibar measured the interest rate that banks used to lend to each other over short periods (such as three, six or 12 months). Jibar was then used by lenders and investors as a benchmark for interest rates on loans, bonds, derivatives and other financial instruments.
But Jibar is now being replaced by Zaronia, which Stanlib Asset Management’s head of money market Eulali Gouws describes as the “rate determined by overnight deposits from banks”. Zaronia is calculated using actual overnight transactions, in other words, real money that banks have borrowed and lent to each other. The formula “knocks out the outliers, averages out the middle, and that is your Zaronia that gets published every day”, Gouws explains.
More accurate
Still, there are some issues on the horizon that worry analysts about the change. For money markets in particular, where millions of South Africans and corporates have their cash stored, the changeover doesn’t look to be too smooth.
The beauty of money market funds is their relative stability. Funds parked in money market accounts, for example, would have been somewhat unruffled by the market volatility that has accompanied the US-Iran war and its reverberating impact on oil and equity prices.
“If you recently had your money in equities, you could have been exposed to losses,” says Gouws. “And if you’re not in a long investment time frame, you might have panicked a bit seeing negative returns on your funds. Money markets had no negative returns, even in this volatile period. It’s a nice, stable income.”
Of course, what you also miss out on are the gains experienced in shares like Nvidia, or Naspers, or, until recently, the JSE’s gold stocks.
Significant upheaval
However, many institutions seem to be taking a passive approach towards Zaronia, which could cause significant upheaval. “There are a lot of instruments out there that need to be transitioned, and it looks like some are choosing to transition legislatively instead of actively,” Gouws says.
What this means is that instead of early transitioning themselves, money market funds and banks might just wait until Zaronia automatically kicks in on December 31 2026 to finally let go of Jibar. At that point, Jibar will no longer be published, and legislatively it will be mandatory to change over.
The transition, scheduled for between January and March 2027, could cause unnecessary strain on financial systems and instruments – and while the Reserve Bank, which initiated the change, has had plenty of workshops to help the industry, “I think many still don’t understand exactly what process they need to follow to transition instruments,” says Gouws.
Another industry change has to do with Zaronia’s existence as a one-day rate. Because Jibar was set for several months ahead, coupon payments would be steady. But because the Zaronia rate changes day to day, it is almost impossible to calculate ahead of time. “Jibar payments are known upfront, but Zaronia payments will be known in arrears once implemented,” says Gouws. “That’s a very big difference that the industry must get used to.”
With the recent hiking of the interest rate by 25 basis points to 7%, payments linked to Zaronia will immediately be impacted by the hike on their coupons, whereas those calculated with Jibar will have a three- to six-month lag before being hit by the hike.
Gouws points out that Zaronia-linked instruments will act more like prime-linked instruments as they will both adjust immediately with changes to the repo rate.
Jumping through hoops
Effectively, the introduction of Zaronia means borrowers lose the certainty of knowing their interest payment until just days before the payment is due. This could complicate cash flow planning and forecasting.
On top of that, Zaronia drops the credit premium that came with Jibar, meaning it will be mathematically lower than the Jibar, no matter what. That might sound nice, but the discrepancy isn’t being let slide. Rather, complex credit adjustment spreads will be applied to ensure a fair transition, though this could lead to higher total costs for legacy borrowers.
Ultimately, the changeover means a lot of jumping through hoops for money market fund managers. “We have to be more deliberate once Zaronia is implemented,” says Gouws. “It’s great when we are in an upward interest rate cycle, but going the other way now, you’ll have to try and fix your interest rate with different instruments.”
She gives the example of a floating rate note – if the rate drops, you won’t get the benefit of that Jibar-related three-month lag. “So, you might have to trade fixed negotiable certificates of deposit [NCDs] or treasury bills to try and get your interest rate not to drop immediately.”
Money market fund managers use overnight rates as a tool to actively adjust their portfolios’ duration and liquidity. Based on whether overnight rates rise or fall, managers position the fund to maximise yields. Because they primarily invest in short-term securities that mature faster, money market fund managers are just about the only people who smile when the interest rate rises.
“I do think we might see one more interest rate hike, so it’s actually great staying linked to Zaronia at the moment,” says Gouws.
Overall, she thinks money market funds in South Africa will generally benefit from Zaronia if the switchover goes smoothly, marking a meaningful step towards a more robust, transparent and globally aligned financial system.
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