South Africa’s financial markets are set for a major transformation with the planned replacement of the Johannesburg Interbank Average Rate (JIBAR) by the South African Rand Overnight Index Average (ZARONIA) by 2026. The JIBAR benchmark, long used for short-term rate calculations in loans, bonds, and derivatives, has been criticised for relying on estimates rather than actual transactions, leading to manipulation concerns. ZARONIA, based on overnight interbank transactions, will provide a more transparent, data-driven benchmark aligned with global shifts toward risk-free rates.

The move to ZARONIA will affect almost all financial contracts currently tied to JIBAR, necessitating system upgrades and contract renegotiations across financial institutions. BDO director Zakhele Nyandeni notes that the transition will require extensive adjustments in valuation models and risk management systems, adding complexity to the financial landscape.

Amid this transition, South Africa’s Reserve Bank (SARB) may further ease financial pressures with a potential interest rate cut, expected at the Monetary Policy Committee’s November 2024 meeting. Economists predict a reduction of 25 to 50 basis points, following stabilised inflation rates below SARB’s target range, helped by lower food and oil prices and a stronger rand. However, rising oil prices due to Middle Eastern geopolitical tensions could prompt SARB to reverse any cuts, highlighting economic fragility.

Together, the shift to ZARONIA and possible rate cuts represent a transformative phase for South Africa’s financial sector. While ZARONIA promises long-term transparency and reliability, the immediate effects of rate adjustments could offer short-term relief to consumers and businesses amid a challenging economic climate.