Amendments to the Prescribed Rate of Interest Act are on the horizon. The Judicial Matters Amendment Bill, 2015 seeks to change the prescribed rate of interest to the repurchase rate (the rate at which banks borrow rands from the Reserve Bank) determined by the South African Reserve Bank, plus 3.5% per year. The reasoning behind the proposed change is to create uniformity and to take prevailing market conditions into account in prescribing the rate of interest.
The prescribed rate of interest will be adjusted in response to any change to the repo rate on the first day of the second month after the Reserve Bank’s determination of the new repo rate. The rate which was applicable on the date the debt became due will continue to apply regardless of any changes to the prescribed rate of interest.
The prescribed rate doesn’t apply to all debts. A different rate may be mandated by another law, by trade custom or where the parties have agreed to a different rate. The Bill doesn’t seek to change these excluded circumstances. Parties who don’t want to be caught in the net of the proposed rate change can agree to a particular interest rate between themselves.
As it currently stands, the Act provides that the interest on a debt is prescribed by the Minister of Justice after consultation with the Minister of Finance.