Still going down – 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.

9 Nov 2020 2 min read Employment Law Alert Article

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 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.

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:

9546 ALERT Employment 9 November 2020_TABLE[1]

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 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%. Then, 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 of 7.25%.

Now, on 6 November, a third drop in the interest rate was announced. The new rate is 7% with effect from 1 September 2020.

The information and material published on this website is provided for general purposes only and does not constitute legal advice. We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information. Please consult one of our lawyers on any specific legal problem or matter. We accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages. Please refer to our full terms and conditions. Copyright © 2024 Cliffe Dekker Hofmeyr. All rights reserved. For permission to reproduce an article or publication, please contact us cliffedekkerhofmeyr@cdhlegal.com.