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South African Reserve Bank

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2010-04-08: Press release: The role of the prime rate and the prime-repurchase rate spread in the South African banking system
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The South African Reserve Bank (the Bank) and the Banking Association of South Africa (BASA) have released a summary of the main conclusions of a more comprehensive study by the joint technical sub-committee announced in a press statement on 22 May 2009. The study was prepared following a discussion around the spread between the repo rate and the prime rate at a meeting held on 21 May 2009 between the Governor of the Bank, executives of South Africa’s five large banks and BASA.

The main conclusion of the report is that the size of the spread between the repo rate and prime is immaterial to the setting of lending rates, as prime is primarily used as a reference rate or benchmark for pricing loans. Although it could cause some short-term problems and disruption with existing agreements, any change in the spread or benchmark rate will not change the methodology for establishing actual bank lending rates. A uniform spread helps to create a competitive environment for banks, which enables customers to choose between products and negotiate interest rates based on their credit profile.

Samantha Henkeman
tel: +27 12 313 4669

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