PA Curve to use ZARONIA as new overnight rate
The South African Reserve Bank's Prudential Authority will replace the South African rand overnight deposit rate (SADR1T) with the South African Rand Overnight Index Average (ZARONIA) in the nominal PA Curve's constituent data set. This change takes effect from June 30, 2026.
Aligning with benchmark reforms
This Prudential Communication from the South African Reserve Bank's Prudential Authority (PA) informs insurers of a significant change to the nominal PA Curve's constituent data set.
The current overnight rate, the South African rand overnight deposit rate (SADR1T), will be replaced by the South African Rand Overnight Index Average (ZARONIA) with effect from June 30, 2026.
This adjustment is crucial for insurers, who are mandated by Paragraph 13.1 of Prudential Standard FSI 2.2 [Valuation of Technical Provisions] to use the government bond curve published by the PA as the risk-free interest rate term structure for discounting cash-flows when valuing technical provisions.
The change reflects ongoing interest rate benchmark reform developments, a key initiative led by the South African Reserve Bank and the Market Practitioners Group, aimed at fostering the market adoption of ZARONIA.
ZARONIA's robust qualifications
The Prudential Authority's decision to adopt ZARONIA aligns with the Position Paper on the Government Bond Curve Review, which recommended updating the PA Curve's short end with a robust alternative.
ZARONIA was rigorously assessed and deemed appropriate for inclusion in the nominal PA Curve.
It satisfies key criteria: near risk-free, transaction-based, robustly governed, supported by reliable data, and underpinned by sufficient market liquidity.
Critically, its integration will not distort the PA Curve's shape.
The nominal PA Curve, featuring the revised ZARONIA overnight rate, will be published and become effective from June 30, 2026, for all FSI 2.2 applications.
A necessary step for market integrity
The shift to ZARONIA is a crucial technical update, aligning South Africa's financial markets with global best practices in benchmark reform.
This move enhances the robustness and reliability of the risk-free interest rate term structure, providing insurers with a more accurate basis for valuing technical provisions.
While seemingly minor, this change underpins market integrity and strengthens financial stability by reducing reliance on less robust legacy benchmarks.