Statement on the Prime Interest Rate

Publication Date: 16/01/2026

Banks offer each customer, on an individual basis, an interest rate for a loan that is quoted using prime as a reference rate.

In line with monetary policy and inflation targeting, the South African Reserve Bank (SARB) makes use of the repurchase (repo) rate to influence short term interest rates in the market. This is a mechanism the SARB

uses to control the cost of funding in the economy, which affects the demand for goods and services, and therefore inflation. The repo rate signals the direction and magnitude of changes in interest rates that are required by SARB, to give effect to monetary policy.

To ensure that there is an effective link between the repo rate and the prime rate, for the transmission of monetary policy objectives, the SARB fixed the spread between the repo rate and the prime rate, in 2001.

A study, ‘The Role of the Prime Rate and the Prime-Repurchase Rate Spread in the South African Banking System’, in 2010, concluded that:

• A single policy rate does not impede competition among banks but merely sets a benchmark in terms of the monetary stance of the central bank. It keeps the prime reference rate in line with the repo rate and removes the ability of commercial banks to deviate from central bank monetary policy objectives.
• The net interest margin – the difference between bank’s average lending rates and their average cost of funding – is not the same as the difference between the repo rate and the prime rate. A fixed spread between the repo rate and the prime rate does not imply a fixed net interest margin for banks.
• A single reference rate – prime – makes it easier for customers to compare the pricing of various banks, relative to the same benchmark. A single prime rate and uniform spread – between the repo and prime rates – facilitates, rather than prohibits competition.
• Banks determine their lending rates irrespective of the difference between the repo rate and the prime rate.

The difference between the repo and prime rates was 3,5% due to the prevailing market conditions and interest rate structures, when it was fixed in 2001. Consequently, the spread of the prime rate over repo has remained stable at 3,5%, since then. The study concluded that there was no compelling reason to change the fixed spread of 3,5% between the repo and prime rates.

Central banks often review policy and reference rates. BASA and its member banks will participate in any review of the prime rate. Banks have already worked with SARB on the review of the Johannesburg Interbank Average Rate (JIBAR).

Any changes to South Africa’s prime interest rate should not result in any changes to the cost of loans to bank customers. The interest rate charged to customers on loans is a result of various considerations, including:

• The cost of funds for that bank. Banks not only charge interest, but they also pay their depositors interest. A bank also borrows money from other institutions to whom they pay interest and raises equity capital from shareholders to whom they pay dividends.
• The credit profile of the individual or company that is borrowing the funds. Banks will primarily look at whether the borrower has enough income to pay back the loan on the agreed terms, and if they have a good record of repaying their loans.
• The risk appetite of the bank, which is how much overall risk the bank is willing to take on. The risk appetite of individual banks varies, depending on their business model and their liquidity and interest rates risks, among others.

The study highlighted that the size of the spread between the repo rate and prime is immaterial to the setting of lending rates.

Separately, BASA is aware of reports that the Competition Commission is investigating alleged cartel behaviour related to the prime rate. BASA cannot comment on the Competition Commission investigation as it is not part of the proceedings.

For more:  The Role of the Prime Rate and the Prime-Repurchase Rate Spread in the South African Banking System