The South African Reserve Bank (Sarb) is seeking to replace the prime lending rate, the main reference commercial banks use to price trillions of rands of loans, with its benchmark interest rate.
Making the Sarb’s policy rate the reference for prime-linked financial contracts would ensure “a clearer link between monetary policy and lending rates” and improve public understanding of loan pricing, it said in a statement on Monday.
Read:
Kganyago favours ending use of prime rate
Prime interest rate: What is it, and do we need it?
South Africa reviews prime rate used to price R6.2trn of credit
The transition should begin from 2027 at the earliest, the Sarb said in a consultation paper, starting with formal engagements with banks and industry stakeholders on the proposed reform.
The prime rate has been fixed at 350 basis points above the benchmark interest rate since 2001.
Lenders typically price loans using prime as a reference, with premiums or discounts to the measure depending on the cost of funding, risk appetite and the creditworthiness of clients.
More than 12 million contracts, with an estimated value in excess of R3.2 trillion ($200 billion) are linked to the prime rate, with consumer loans and mortgages accounting for about a third, according to the Sarb.
ADVERTISEMENT
CONTINUE READING BELOW
Listen/read: Our real interest rate is 8.3% – the highest in the world’ [Jan 2025]
The consultation paper is a “welcome formal first step from the Sarb on the prime rate cessation process,” said Peter Attard Montalto, managing director at advisory firm Krutham.
The period of about one month for stakeholder comments suggests “they wish to move at pace,” he added.
Existing contracts?
It might not be feasible to amend existing retail contracts given the scope of products as well as consumer protection laws, the Sarb said in the paper.
It has recommended a so-called fallback spread of 350 basis points above the benchmark interest rate in existing contracts to minimise risk and ensure continuity.
ADVERTISEMENT:
CONTINUE READING BELOW
New contracts should directly reference the policy rate instead of prime, it said.
The central bank will introduce a new reference rate for short-term financial contracts such as derivatives, known as Zaronia, to replace the Johannesburg interbank average rate (Jibar) on 31 December.
Lessons from this transition will inform its shift from prime, it said.
Read: Standard Bank issues SA’s first Zaronia-linked bond [May 2025]
The Reserve Bank’s benchmark rate is currently 6.75% and the monetary policy committee will meet next month to review it.
© 2026 Bloomberg
Follow Moneyweb’s in-depth finance and business news on WhatsApp here.
#prime #Reserve #Bank #key #rate #price #loans