The possible phasing out of the prime lending rate in South Africa would not undermine Namibia’s monetary policy alignment, but could introduce structural and operational challenges for the domestic banking sector, according to Simonis Storm Economist Almandro Jansen.
The debate follows indications from the South African Reserve Bank (SARB) that the long-standing prime lending benchmark may be scrapped.
Jansen said Namibia’s monetary framework is anchored in maintaining the one-to-one exchange rate peg with the South African rand, rather than mirroring specific retail lending benchmarks.
As a result, the Bank of Namibia focuses primarily on aligning its policy rate with that of the SARB to manage capital flows and preserve reserve adequacy.
He said Namibia’s ability to maintain monetary alignment would remain intact even if South Africa moves away from prime, provided close coordination of policy rates is maintained.
“Namibia’s monetary policy framework is fundamentally anchored in preserving the one-to-one exchange rate peg with the South African rand, rather than in the specific structure of retail lending benchmarks used by commercial banks,” Jansen said.
However, he cautioned that a structural shift in South Africa’s interest rate framework would have important second-round effects for Namibia.
He noted that Namibia’s banking sector is deeply integrated with South Africa through ownership structures, funding channels, pricing systems and risk management frameworks.
A divergence in retail reference rates, he said, would increase operational complexity for banks, weaken cross-border product comparability and potentially blur monetary policy transmission across the Common Monetary Area.
Over time, this could place pressure on Namibia to reassess its continued reliance on a prime-based pricing convention.
From a policy perspective, Jansen said the critical issue is whether changes in the policy rate continue to pass through clearly and proportionately to retail lending rates.
“The most material issue is not whether Namibia retains or abandons prime per se, but whether changes in the policy rate continue to pass through predictably and proportionately into retail lending rates,” he said.
If South African banks adopt benchmarks that transmit policy changes more directly, while Namibian banks remain anchored to prime, the effective stance of monetary policy could begin to diverge in practice, despite formal alignment of repo rates.
Jansen said this could complicate policy communication and weaken signals intended for households and businesses.
He said such a shift would require the Bank of Namibia to prioritise functional alignment over institutional mimicry, potentially modernising its domestic reference-rate framework to preserve comparable financial conditions across borders.
“This would not represent a loss of monetary autonomy,” Jansen said. “In a pegged exchange rate regime, credibility depends not only on matching policy rates, but also on ensuring comparable financial conditions across borders.”
For households and businesses, he said the removal of prime would mainly affect how borrowing costs are structured and communicated. The current prime-based system, he noted, obscures the drivers of interest rates by combining policy stance, bank funding costs and borrower risk into a single reference point.
A shift to policy- or base-rate-linked pricing would improve transparency, but could lead to more frequent interest rate adjustments and higher perceived volatility. Lower-risk borrowers could benefit from sharper pricing, while higher-risk borrowers may face more explicit risk premia.
“Under a more market- or policy-linked benchmark, lending rates, particularly variable-rate loans, are likely to adjust more frequently than under the traditional prime system,” Jansen said.
The renewed debate follows comments by SARB Governor Lesetja Kganyago, who said the prime lending rate, fixed at 350 basis points above the repo rate since 2001, may be nearing its end as part of efforts to improve transparency.
Speaking at the World Economic Forum in Davos, Kganyago said the SARB is reviewing the benchmark as part of broader reforms aimed at enhancing transparency in the interest rate framework.
This article was first published here in partnership with The Brief