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The Prescribed Rate of Interest to be linked to the Repo Rate

29 January 2015 No Comment

In July last year we wrote on the first change to the interest rate in terms of the Prescribed Rate of Interest Act in over 20 years.

Yesterday the Department of Justice and Constitutional Development announced an Judicial Matters Amendment Bill, which included a fixed method of calculating and making the Prescribed Rate of Interest more market related.

The relevant part of the Departments news Statement read:

“At present the Prescribed Rate of Interest Act, 1975, provides that if a debt bears interest and the rate at which the interest is to be calculated is not governed by any other law or by an agreement or a trade custom or in any other manner, such interest shall be calculated at the rate prescribed by the Minister, after consultation with the Minister of Finance.  In order to ensure that the interest rate in this Act reflects prevailing market conditions, the amendments in the Bill propose that the rate of interest will be the repurchase rate, as determined by the SA Reserve Bank from time to time, plus 3,5 percent per annum.  The Minister is furthermore required to publish the amended rate in the Gazette whenever the repurchase rate is adjusted by the SA Reserve Bank. ”

Currently the Prescribed Rate of Interest is 9% per annum  as from 1 August 2014, if were linked to the Repurchase rate, more commonly called the Repo Rate, the rate would be 9,25% per annum.

As pointed out the prior to last years amendment to the interest rate, the Department of Justice and Constitutional Development seemed to have gone to sleep on amending this rate for over 20 years compare to prior to that  – particularly in the late 1980s and early 1990s when interest rates were climbing and volatile. The new system, although apparently requiring the Minister’s gazetting of the changed rate, would force more regular changes to this rate and tie it directly to the Repo rate which effectively controls market rates in South Africa.

 

 

 

 

 

 

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