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Johannesburg - The interest rate at which SA's banks lend money to each other has remained steady amid the global financial crisis, unlike its international equivalents in Europe and the US.
The Johannesburg interbank agreement rate (Jibar) is a market rate that reflects expectations for interest rates, similar to futures markets for interest rate contracts, according to Citigroup SA's chief economist Jean-François Mercier.
He said that Jibar has not reacted much to the latest rand sell-off. "It has also hardly reacted to the global financial crisis in comparison with US and European interbank lending rates, as SA banks are still in a solid financial situation.
"In a normal functioning money market, a rise in Jibar is generally a sign that the market is expecting interest rates to rise."
At 15:30 overnight Jibar was at 12.27%, which indicates that the market expects rates to remain on hold, as the current repo rate (the repurchase rate, or the rate at which the SA Reserve Bank lends to commercial banks) is at 12%.
In SA, Jibar has had a direct relationship with the repo rate with both moving in the same direction, but this has not been the case in the US and Europe.
Interbank lending rates on the up
"One big problem in the US and Western Europe is the decoupling of Libor (the London interbank offered rate), which is the equivalent of Jibar, and policy rates like the Fed Funds in the US," said Mercier, adding that this was a direct consequence of the global financial crisis.
International media reports show interest rates have been dropping internationally, but the interbank lending rates are being hiked.
News service Associated Press reported that governments around the world have slashed interest rates and ramped up their lending to unprecedented levels, but banks are still charging each other extremely high borrowing rates.
"Investors in the stock market, where heavy selling continued on Friday, aren't going to get any relief until bank-to-bank lending rates come down. The rate is directly tied to many consumer loans, including adjustable-rate mortgages.
"If those rates rise, that means more mortgage defaults and foreclosures," it said.
According to Mercier, banks are either unwilling to lend to other banks because of a "perceived rise in the counterparty risk or a need to hold onto their cash", and they will somehow pass costs on to the consumer.
Other liquid rate agreements (Jibar forward rates) also show market expectations of rates moves in a month, three months, six months, and 12 months.
"If you look at the forward rate agreements the curve is flat, which means that the market is expecting the SA Reserve Bank's monetary policy committee to hold rates for now, though to cut them in the first half of 2009."
-Fin24.com