Overnight spreads and reference rates

The South African Benchmark Overnight Rate (SABOR) is the current overnight benchmark rate in South Africa and is used to assess the transmission of monetary policy to retail bank deposit and lending rates linked to it. The SARB is transitioning to a new overnight benchmark rate, ZARONIA (South African Rand Overnight Index Average), which is an unsecured overnight rate, intended to be more representative of the rates associated with rand overnight wholesale funding obtained by banks.  The SARB has also begun publishing the South African Rand Interbank Overnight Rate (ZARIBOR), which is based on inter-bank rates.

Since the start of their publication, ZARONIA and ZARIBOR have had larger and more volatile spreads to the policy rate than SABOR. The spreads have averaged -14 and -9 basis points for ZARONIA and ZARIBOR, compared to -4 basis points for SABOR. Negative spreads are not unusual by international standards, and larger negative spreads in the case of the new reference rates likely reflect SARB’s unremunerated cash requirements on banks, as well as trimming of very high and very low rate transactions from ZARONIA’s calculation.

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