South Africa Set To Scrap Prime Interest Rate for New SARB System
- South Africa’s central bank plans to scrap the prime interest rate and quote loans using the repo rate instead
- Deputy Governor Rashad Cassim confirmed the shift will happen eventually, though no exact timeline has been set yet
- The Reserve Bank is also switching from JIBAR to ZARONIA this year, a more transparent overnight lending benchmark
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South Africa’s Reserve Bank plans to scrap the prime interest rate soon. Consumer loans would instead be priced directly off the central bank’s own repo rate.
Deputy Governor Rashad Cassim revealed the plan earlier this month. According to reports, he said no exact timeline exists yet, but changes could come by 2027.
Currently, banks quote credit at prime, which sits above the central bank’s repo rate. Prime is fixed at three and a half percentage points above the repo rate. Under the new plan, a loan at prime would become repo plus that margin. This would show borrowers exactly what profit margin their bank earns on lending.
Bigger change happening this year
The Reserve Bank plans an even bigger shift before the prime rate falls away. South Africa is moving away from JIBAR toward a new benchmark called ZARONIA.
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According to a report by BusinessTech, JIBAR relied on survey estimates submitted by banks, which made it open to manipulation. ZARONIA instead uses real overnight lending transactions between financial institutions, the report explained, making it a far more transparent and reliable benchmark.
JIBAR trading already stopped in May, with full cessation required by December this year. SA Home Loans previously used JIBAR but will now switch back to prime pricing.
In the report, Cassim admitted some banks are worried about older contracts still linked to prime. The Reserve Bank is engaging lenders directly to help manage that transition smoothly. International markets do not yet follow ZARONIA, creating another hurdle for regulators. Cassim said ongoing talks with global partners aim to smooth out that problem.
For now, existing loans linked to prime remain completely unaffected by the changes. Consumers will not see any difference in their repayments until further notice arrives. Officials stressed that any transition would happen gradually and remain carefully managed throughout.
South Africa’s Cabinet has already backed the legislative changes needed for the shift. Cassim said that support has made it easier to plan removing prime altogether. More details on the full timeline are expected sometime later in 2027.
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Source: Briefly News
