BoN tracks SA lending rate reform
The Bank of Namibia (BoN) has said it is carefully monitoring a planned adjustment by the South African Reserve Bank (SARB) to modernise interest rate benchmarks, but emphasised that borrowers should not be alarmed.
The reform forms part of SARB’s ongoing efforts to modernise South Africa’s interest rate benchmarks and align them with international best practice.
“The prime lending rate (PLR) has become detached from its original purpose as the base rate for pricing credit, leading to widespread misconceptions about its function. This partly reflects the evolving nature and use of the PLR since its introduction in South Africa’s financial markets, a period during which the PLR served as a base rate for bank lending,” SARB said in a recent market communication.
“While the simplicity of the PLR has supported comparability of lending rates and improved monetary policy transmission, its continued use is now considered counterproductive given these misconceptions,” the statement added.
The BoN noted that it is monitoring SARB’s review of the prime-to-repo rate spread. Such a review is not unprecedented; a similar exercise was concluded in 2010.
According to BoN, while the size of the spread had little effect on commercial bank lending rates, it remained important to ensure that changes in monetary policy were transmitted effectively to both existing and prospective borrowers.
