10.25%: Why South Africa’s Prime Rate Is Under Review
The prime interest rate is one of the most familiar and important numbers in South Africa’s economy; yet few people stop to question how it is set.
Currently at 10.25%, the prime rate is used to price trillions of rand in credit, from home loans and vehicle finance to overdrafts. It determines how much households pay each month and how expensive it is for companies to borrow and invest. Yet few people understand how it is set, or why it exists alongside the repo rate.
In this episode of Number of the Day, Francis Herd explains why this benchmark is now under review. The country’s interest rate system is unusual: the Reserve Bank sets the repo rate, which is what it charges commercial banks, while consumers are charged prime; currently 3.5 percentage points higher. At the heart of the discussion is whether prime still accurately reflects borrowing conditions, how closely it should follow the repo rate set by the South African Reserve Bank, and whether the system fairly balances risk between banks and consumers.
That gap has raised questions about fairness, transparency and whether the system still makes sense. Some economists argue that abolishing prime could simplify borrowing costs and reduce the psychological anchor that keeps consumer rates high. Even small changes to the way prime is calculated could have significant consequences. For borrowers, it could mean higher or lower monthly repayments. For the economy, it could influence spending, investment, and growth.
The episode cautions against overpromising. Any change would likely affect future loans rather than existing ones, and banks could simply reprice credit using a different benchmark.
Still, with South Africa among the most indebted nations globally, even small changes to how borrowing costs are framed could have meaningful consequences for households.
The episode highlights a simple truth: when it comes to interest rates, the structure matters just as much as the number.