South Africa to Replace Prime Lending Rate with Repo Rate
The South African Reserve Bank (SARB) is proposing a significant shift in how loans are priced in the country, aiming to replace the traditional prime lending rate with the repo rate as the primary reference point. This change, outlined by Frank Blackmore, Lead Economist at KPMG South Africa, seeks to increase transparency and simplify loan calculations for consumers and businesses.
The Current System and Its Limitations
For decades, the prime lending rate has been set at 350 basis points above the repo rate, with banks then pricing loans as plus or minus prime. This structure, while longstanding, creates a disconnect between monetary policy decisions and the actual interest rates consumers pay. According to the SARB, the fixed 350-basis-point spread may no longer be necessary in the current economic climate.
How the New System Will Work
Under the proposed system, banks would quote loan rates as a margin above the repo rate, rather than referencing the prime lending rate. While the overall cost of borrowing is not expected to automatically decrease, the change aims to provide greater clarity for borrowers. Instead of hearing “prime plus 1 percent,” consumers will be quoted “repo plus X percent,” making it easier to understand the margin a bank is adding above the policy rate.
Benefits for Consumers and Increased Competition
The primary benefit of this shift is increased transparency. Consumers will have a clearer understanding of how much margin a bank adds above the policy rate. This clarity is expected to foster greater competition among financial institutions. Banks that accurately assess risk may offer tighter margins, potentially leading to more competitive lending rates, particularly for lower-risk borrowers. SARB Proposes Replacing Prime With Repo Rate
Impact on Interest Rates and Inflation
Blackmore notes that the transition aligns with decreasing inflation rate targets, potentially signaling a forthcoming reduction in overall interest rates. The removal of the fixed 350 basis point margin allows for a more streamlined and competitive approach to loan pricing. Borrowers with strong credit profiles may benefit from lower effective rates as a result.
SARB’s Recent Monetary Policy Stance
The SARB has recently maintained a cautious approach to interest rates. In January 2026, the Monetary Policy Committee (MPC) kept rates unchanged despite encouraging economic signals, including inflation averaging 3.2% in the previous year and expected growth exceeding 1%. Frank Blackmore, lead economist at KPMG South Africa, explained the Bank’s cautious stance, stating that while the outlook for growth and inflation is encouraging, risks remain. Point of view: SARB keeps interest rates unchanged ahead of budget…
Repo Rate Decision Expected
As of February 26, 2026, the SARB is preparing to announce its latest decision on the repo rate. Frank Blackmore, Chief Economist at KPMG SA, suggests that a cut would be beneficial, freeing up disposable income and supporting economic spending, especially with inflation easing to between 2.7% and 2.8%, well below the SARB’s target. Details – Channelafrica
Recent Rate Holds
The Reserve Bank’s monetary policy committee (MPC) maintained the repo rate at 7% in September 2025, having already reduced rates by 125 basis points since September of the previous year. The Bank indicated a desire to observe the effects of these reductions on the economy and how inflation risks evolve. WATCH: Why the Reserve Bank hit pause
Stakeholders in the financial sector will closely monitor the potential impacts of this proposal as discussions continue.