South Africa Central Bank Chief Favors Ending Use of Prime Rate

(Bloomberg) — South African Reserve Bank Governor Lesetja Kganyago said he favors ending the use of prime, the main reference rate commercial banks use to price trillions of rand of loans to clients.

“We would like to have much more transparency, so that consumers know what is actually going on,” Kganyago said in an interview Wednesday on NewzRoom Afrika from the World Economic Forum in Davos, Switzerland. The central bank is undertaking a study to review the rate, and “the most natural outcome would be that we just get rid of prime,” he said.

The central bank confirmed earlier this month that is reviewing the rate that has been fixed at 350 basis points above the country’s monetary policy rate since 2001.

Lenders typically price loans using prime as a reference, with premiums or discounts to the measure depending on the cost of funding, risk appetite and the creditworthiness of clients.

The central bank’s benchmark rate is currently 6.75%, and the monetary policy committee meets next week to review it.

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