The Prescribed Rate of Interest Act, No 55 of 1975 (PRIA) provides that if a debt bears interest, the prescribed rate of interest becomes applicable. The only exceptions to this general rule is if a different interest rate is set by any other law, trade custom or agreement between the parties.
According to the PRIA, the prescribed rate of interest is calculated by adding 3.5% to the repurchase rate. Therefore, in order to calculate the prescribed rate of interest, one relies on the repurchase rate (which changes from time to time).
Litigants must ensure that they use the most recent and correct prescribed rate of interest when instituting any legal proceedings that includes a claim for interest. In terms of claims for interest in certain labour disputes, s143(3) of the Labour Relations Act, No 66 of 1995 is relevant. Section 143(3) states that an arbitration award (sounding in money) earns interest from the date of the award at the prescribed rate of interest. The only exception to this general rule is if the arbitrator makes a ruling to the contrary.
This alert discusses the recent drop in the prescribed rate of interest. The discussion is important for litigation that involves a claim for interest.
In March 2018, the Monetary Policy Committee of the South African Reserve Bank (SARB) decreased the benchmark interest rates by 25 basis points as follows:
According to SARB, the decrease can be attributed to various factors including domestic political developments and recent dollar weakness.
The decrease in the repurchase rate has resulted in a drop in the prescribed rate of interest. On 20 April 2018, the Minister of Justice and Correctional Services published a notice in the Government Gazette on the revised prescribed rate of interest. With effect 1 May 2018, the prescribed rate of interest dropped from 10.25% to 10%.
On 24 May 2018, SARB announced that the benchmark interest rates remain unchanged. The prescribed rate of interest therefore remains at 10% (until further notice).