South Africa’s financial landscape could be heading for its biggest shift in decades. The South African Reserve Bank (SARB) has announced plans to scrap the prime ratethe bedrock reference for pricing trillions of rands in loansand replace it with the central bank’s own benchmark interest rate.
The proposal, outlined in a consultation paper released on Monday, aims to create a more transparent link between monetary policy and the rates consumers and businesses actually pay on their loans. If implemented, the transition would begin no earlier than 2027.
What’s Changing?
Since 2001, the prime rate has been fixed at 350 basis points (or 3.5 percentage points) above the SARB’s benchmark repurchase (repo) rate. Banks use prime as their base, then add or subtract margins depending on a borrower’s risk profile and the type of loan. It’s the rate quoted for everything from home loans to business overdrafts.
Under the new proposal:
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New contracts would reference the SARB’s policy rate directly, rather than prime.
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Existing contracts would use a “fallback spread” of 350 basis points above the policy rate to ensure continuity and minimise disruption.
The scale of the shift is enormous. The SARB estimates that more than 12 million contracts, with a total value exceeding R3.2 trillion, are linked to prime. Consumer loans and mortgages account for about one-third of that total.
Why Now?
The central bank argues that linking loan pricing directly to its policy rate would create “a clearer link between monetary policy and lending rates” and improve public understanding of how loan rates are determined. In essence, when the SARB moves the repo rate, the impact on borrowers should become more immediate and transparent.
The move also aligns with global trends. Many developed economies have moved away from bank-administered reference rates toward risk-free rates administered by central banks. The SARB is already transitioning from the Johannesburg Interbank Average Rate (Jibar) to a new rate called Zaronia for short-term financial contracts like derivatives, effective 31 December this year. Lessons from that shift will inform the prime rate transition.
Industry Reaction
Peter Attard Montalto, managing director at advisory firm Krutham, described the consultation paper as “a welcome formal first step.” He noted that the one-month comment period suggests the SARB “wishes to move at pace.”
The consultation will be critical. Banks, lenders, and industry bodies will need to grapple with the operational, legal, and consumer protection implications of transitioning millions of contracts.
What About Existing Loans?
The SARB acknowledges that amending existing retail contracts may not be feasible, given the sheer volume of products and the protections afforded by consumer law. Hence the proposed fallback spread: for existing prime-linked loans, the rate would effectively be calculated as the policy rate plus 350 basis points, maintaining the status quo.
For new contracts, however, the direct link to the policy rate would apply immediately upon implementation.
The Bigger Picture
The prime rate is more than a technical benchmark. It’s embedded in the financial vocabulary of South Africansquoted in news reports, debated at dinner tables, and felt in monthly bond repayments. Replacing it with the repo rate would require a significant public education effort.
But for the SARB, the goal is clarity. Monetary policy transmits through the economy via lending rates. If those rates are directly tied to the policy rate, the transmission mechanism becomes cleaner, faster, and more predictable.
The repo rate currently sits at 6.75% , with the Monetary Policy Committee scheduled to meet next month. Under the new system, that number would become the direct reference point for new loansno prime calculation required.
What Happens Next
Stakeholders have approximately one month to submit comments on the consultation paper. If the SARB proceeds, the transition would begin in 2027, giving the financial sector time to adapt systems, update contracts, and educate customers.
For now, the prime rate remains. But its days may be numbered.
