South Africa’s central bank has launched a formal consultation on plans to discontinue the long-standing prime lending rate and instead anchor loan pricing directly to its benchmark policy rate.
In a statement released on Monday, the South African Reserve Bank said linking financial contracts to the repo rate would strengthen the transmission of monetary policy and improve transparency in how lending rates are determined. The transition could begin no earlier than 2027, with discussions now under way with banks and other industry participants.
The prime rate has been set at 350 basis points above the benchmark rate since 2001 and is widely used by commercial lenders as the base for pricing loans. Financial institutions typically adjust pricing above or below prime depending on funding costs, credit risk and borrower profiles.
According to the central bank, more than 12 million contracts with a combined value exceeding R3.2 trillion are tied to prime. Consumer credit and home loans represent roughly one-third of that exposure.
The Reserve Bank said amending existing retail agreements may prove impractical due to the scale of contracts and consumer protection regulations. To maintain continuity, it proposed retaining a fallback spread of 350 basis points above the benchmark rate for legacy agreements. New lending arrangements, however, should reference the policy rate directly.
Separately, the central bank will introduce a new short-term reference rate, Zaronia, on 31 December to replace the Johannesburg interbank average rate (Jibar). Officials indicated that insights gained from that shift would guide the broader transition away from prime.
The benchmark policy rate currently stands at 6.75%, with the monetary policy committee scheduled to review it at its next meeting.
Source: Bloomberg, South African Reserve Bank consultation paper
