12 October 2020 by and Employment Law Alert

Updated: Even lower than expected – another drop in the prescribed interest rate

According to the Prescribed Rate of Interest Act 55 of 1975, 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, subject to announcements by the Minister of Finance.

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, section 143(3) of the Labour Relations Act 66 of 1995 (LRA) is relevant. Section 143(3) of the LRA 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.

On 23 July 2020, the Monetary Policy Committee of the South African Reserve Bank (SARB) decreased the benchmark interest rates by 25 basis points as follows:

 9433 ALERT Employment 12 October 2020_table

According to SARB, the decrease can be attributed to various factors including uncertainty in financing conditions for emerging markets, depreciation of the rand and economic contraction.

The decrease in the repurchase rate has resulted in a drop in the prescribed rate of interest. On 11 September 2020, the Minister of Justice and Correctional Services (Minister) published a notice in the Government Gazette on the revised prescribed rate of interest, announcing that with effect from 1 June 2020, the prescribed rate of interest dropped from 8,75% to 7,75%. However, on 9 October 2020 - less than a month later - the Minister has issued a notice repealing the previous revision and announcing an even lower prescribed rate of interest. The new rate is 7,25% with effect from 1 July 2020.

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