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Term premium and rate expectation estimates from the South African yield curve


  • Luchelle Soobyah
  • Daan Steenkamp


Long-term interest rates have two major drivers: expectations of future short term interest rates and the term premium. We show that the term premium embedded in South African long rates has risen over the last year and is significantly higher than in advanced economies like the United States. Our modelling results suggest that a higher term premium tends to have adverse impacts on domestic activity and the currency. Higher short rate expectations, on the other hand, tend to have the opposite effect on the economic slack, consistent with such expectations being informative about theoutlook for domestic growth and inflation.

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  • Luchelle Soobyah & Daan Steenkamp, 2020. "Term premium and rate expectation estimates from the South African yield curve," Working Papers 9998, South African Reserve Bank.
  • Handle: RePEc:rbz:wpaper:9998

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    1. Viktoria Hnatkovska & Amartya Lahiri & Carlos A. Vegh, 2016. "The Exchange Rate Response to Monetary Policy Innovations," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(2), pages 137-181, April.
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    6. Benjamin H Cohen & Peter Hördahl & Dora Xia, 2018. "Term premia: models and some stylised facts," BIS Quarterly Review, Bank for International Settlements, March.
    7. Michael Callaghan, 2019. "Expectations and the term premium in New Zealand long-term interest rates," Reserve Bank of New Zealand Analytical Notes series AN2019/02, Reserve Bank of New Zealand.
    8. Andrew Blake & Garreth Rule & Ole Rummel, 2015. "Inflation targeting and term premia estimates for Latin America," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 24(1), pages 1-21, December.
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    Cited by:

    1. Steenkamp, Daan & Erasmus, Ruan, 2022. "Term premium estimation for South Africa," MPRA Paper 114895, University Library of Munich, Germany.
    2. Roy Havemann & Hylton Hollander, 2022. "Fiscal policy in times of fiscal stress: Or what to do when r > g," WIDER Working Paper Series wp-2022-52, World Institute for Development Economic Research (UNU-WIDER).
    3. Tumisang Loate & Ekaterina Pirozhkova & Nicola Viegi, 2021. "Sailing into the Wind evaluating the near future of Monetary Policy in South Africa," Working Papers 11006, South African Reserve Bank.
    4. Johannes W. Fedderke, 2020. "Is the Phillips curve framework still useful for understanding inflation dynamics in South Africa," Working Papers 10142, South African Reserve Bank.
    5. Matthew Greenwood-Nimmo & Daan Steenkamp & Rossouw van Jaarsveld, 2022. "A banklevel analysis of interest rate passthrough in South Africa," Working Papers 11027, South African Reserve Bank.
    6. Luchelle Soobyah & Daan Steenkamp, 2020. "A messure of south african risk," Occasional Bulletin of Economic Notes 10009, South African Reserve Bank.
    7. Hylton Hollander, 2021. "Debt-financed fiscal stimulus in South Africa," WIDER Working Paper Series wp-2021-152, World Institute for Development Economic Research (UNU-WIDER).
    8. Ekaterina Pirozhkova & Jeffrey Rakgalakane & Luchelle Soobyah Rudi Steinbach, 2023. "EnhancingtheQuarterlyProjectionModel," Working Papers 11044, South African Reserve Bank.
    9. Mpho Rapapali & Daan Steenkamp, 2020. "Developments in bank funding costs in South Africa," Working Papers 9818, South African Reserve Bank.
    10. Luchelle Soobyah & Nicola Viegi, 2022. "CanNationalTreasurydocontractionarymonetarypolicy," Working Papers 11031, South African Reserve Bank.
    11. Rhea Choudhary, 2022. "Analysing the spillover effects of the South African Reserve Banks bond purchase programme," Working Papers 11025, South African Reserve Bank.
    12. Tumisang Loate & Romain Houssa & Nicola Viegi, 2021. "The macroeconomic effect of fiscal policy in South Africa: A narrative analysis," WIDER Working Paper Series wp-2021-156, World Institute for Development Economic Research (UNU-WIDER).
    13. Daan Steenkamp & Tim Olds, 2021. "Estimates of bank-level funding costs in South Africa," Working Papers 857, Economic Research Southern Africa.
    14. Patrick Honohan & Athanasios Orphanides, 2022. "Monetary policy in South Africa, 2007-21," WIDER Working Paper Series wp-2022-29, World Institute for Development Economic Research (UNU-WIDER).
    15. Ekaterina Pirozhkova & Jeffrey Rakgalakane & Luchelle Soobyah & Rudi Steinbach, 2023. "Enhancing the Quarterly Projection Model," Working Papers 11048, South African Reserve Bank.
    16. Rhea Choudhary, 2022. "AnalysingthespillovereffectsoftheSouthAfricanReserveBanksbondpurchaseprogramme," Working Papers 11039, South African Reserve Bank.

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