By Bonolo Mokonoto.
The South African Reserve Bank and financial institutions are preparing a backup plan in case legislation needed for the switch to a new rand benchmark interest rate isn’t passed by the end of the year.
The Market Practitioners Group, which includes the central bank, the Financial Sector Conduct Authority and private-sector firms, is considering options to ensure the transition can proceed smoothly if the legislation is delayed, the Reserve Bank said in an emailed response to questions.
“Any changes to the transition timetable or related arrangements would be communicated to the market in a timely manner,” it said.
The South African rand overnight index average — known as Zaronia — is scheduled to replace the Johannesburg interbank average rate at the end of this year.
Lawmakers last month paused consideration of the General Finance Laws Amendment Bill, which includes provisions to help shift existing contracts from Jibar to Zaronia, particularly those that are difficult to amend. They wanted to ensure the legislation complied with a September 17 Constitutional Court ruling requiring parliament to facilitate adequate public participation in the legislative process.
The central bank also stressed that Zaronia remains the preferred successor rate to Jibar.
“Any delay in the legislative process would not change the direction of the transition, and market participants should continue to adopt Zaronia and reduce their Jibar-related exposures,” it said.
As part of the switch, the MPG has selected FTSE Russell to administer Term Zaronia, a version of the benchmark designed to give borrowers and lenders greater certainty about future interest payments.
FTSE Russell is publishing a test version of Term Zaronia on its website, allowing banks and other market participants to track it as trading in products linked to the new benchmark develop, the central bank said.