SARB to review and possibly scrap the prime interest rate

The Governor of the South African Reserve Bank (SARB), Lesetja Kganyago, says he is in favour of ending the use of the prime lending rate to price bank loans, as more transparency is needed for consumers.

The Central Bank is conducting a study to review the rate, which will possibly result in prime being scrapped.

Economist and strategist Xhanti Payi says this system was put in place in 2001.

"2001 comes along with a number of changes, including trying to bring in inflation targeting, and trying to stabilise the market."

Payi explains that the intention was to help us have a better understanding of what the repo rate is in relation to what the bank spends. The purpose of this was to track that interest rates going up led to the cost of loans increasing, reducing expenditure in order to control inflation.

"That reference was important, because we had a better understanding of the difference between the policy rate and its impact on the economy."

If the prime lending rate is removed, factors like one's credit rating will still be used for loan applications.

To listen to Xhanti Payi in conversation with CapeTalk and 702’s Africa Melane, click the audio below: