Reserve Banks says rate gap is 'immaterial'

The South African Reserve Bank on Thursday said the gap between the repo rate and the prime rate did not affect the cost of borrowing for consumers, contradicting unions who claim consumers are not fully benefiting from lower interest rates.

The prime rate is used by commercial banks as a benchmark when pricing loans and is 3,5 percentage points above the repo rate.

Since December 2008, the central bank has cut the repo rate -- the rate at which it lends to commercial banks -- by 550 basis points to 6,5%, and banks have lowered the prime rate.

But South Africa's powerful unions say consumers have been unable to benefit fully from lower rates because of the 3,5 percentage point margin and want the gap to be narrowed.


The central bank said in a statement that the difference between the two rates was "immaterial" to the setting of lending rates.

"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," the bank said. -- Reuters

Source: Mail & Guardian Online