South Africa to scrap its prime lending rate with central bank policy rate

By: Chidozie Nwali

A consultation paper released on Tuesday reveals the South African Reserve Bank (SARB)  intention to replace the long-standing “Prime” benchmark with its own Policy Rate (Repo Rate) next year. The move aims to modernize the credit market and eliminate decades of consumer confusion regarding how loans are priced.

Since 2001, the Prime rate has been mechanically fixed at exactly 350 basis points (3.5%) above the Repo rate. The SARB argues this relationship has become an “administrative hangover” that no longer reflects the actual cost of bank funding or risk.

“The Prime rate has evolved into a rate that no longer represents a base rate for pricing credit,” the SARB stated in the paper. “Its role is now largely administrative and detached from its original purpose.”  SARB

Under the current system, a Repo rate of 6.75% automatically results in a Prime rate of 10.25%. The SARB believes this “middleman” rate obscures the transparency of lending, leading many South Africans to believe that the 3.5% gap represents guaranteed bank profit—a misconception the bank is eager to correct.

For the average South African with a home loan or car finance, the shift will change the language of their debt, but not necessarily the cost.

Instead of being quoted “Prime plus 1%,” new borrowers will likely see offers expressed as “Repo plus 4.5%.” By stripping away the “Prime” mask, the SARB hopes consumers will better understand the specific “risk margin” banks are charging them above the official policy rate.

With over R3.2 trillion ($199.5 billion) in existing contracts linked to Prime, the SARB is proposing “safe harbor” provisions. This would ensure that existing “Prime” contracts are legally treated as “Repo + 3.5%” to avoid mass contract renegotiations.

The SARB is taking a cautious approach to avoid market disruption. The transition is expected to follow the conclusion of the Jibar-to-Zaronia transition (the overhaul of the interbank rate), which is set to end in December 2026.