The South African Reserve Bank wants to do away with the prime lending rate. South Africans could one day pay less for their home loans – but they could just as easily end up paying more. That uncertainty sits at the heart of a new proposal from the South African Reserve Bank (SARB) to phase out the long-standing prime lending rate, a move that may sound technical but carries potential consequences for borrowers.
In its latest discussion paper, SARB has floated the idea of scrapping prime as the standard reference rate for loans, replacing it with direct repo-linked pricing. The proposal follows closely on another major policy shift championed by SARB governor Lesetja Kganyago of moving South Africa’s inflation target to 3% with a narrower band, instead of the previous 3% to 6% range. The Bank argues thatlower, more stable inflation should reduce borrowing costs over time.
Inflation targets do not automatically deliver lower interest rates. They influence expectations, credibility and long-term pricing dynamics – but real-world outcomes still depend on economic growth, global shocks and fiscal stability. Similarly, removing prime does not guarantee cheaper credit.
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Prime has historically functioned as a widely recognised benchmark. Even if poorly understood, it has provided consumers with a simple anchor for judging loan pricing. In a repo-linked system, that familiar reference point disappears.
Banks would gain greater flexibility in how they structure margins above the repo rate — a development that could sharpen competition for low-risk borrowers but potentially widen pricing differences for others. Trading Economics refers to South Africa’s interest rate as the repo figure and not prime.
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