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News Flash: A Change in the Prescribed Rate of Interest

by Matthew Thomson

After remaining at 15.5% since 1993, the Prescribed Rate of Interest has been changed to 9%, effective as of 1 August 2014. The interest rate is supposed to be market related and the new rate reflects this purpose; being the sum of the repo rate (at the time 5.5%) and a margin of 3.5% thereon.

The Prescribed Rate of Interest Act 55 of 1975 makes provision for the Minister of Justice and Constitutional Development to vary the rate from time to time. However, for the past 21 years it has stayed constant at 15.5%.The new rate of 9% is the lowest rate prescribed since the Act came into effect in 1976 (the previous low being 11%).

Application:

When a debt becomes due and payable and a debtor fails to make payment or performance timeously, the law recognises that the creditor is entitled to mora interest (interest on the delay of payment). Where the debt is due by one party to another and no interest rate was stipulated in terms of an agreement, legislation or trade custom, the debt bears interest according to the Act.

The effect on debts due before 1 August 2014:

The Appellate Division in Davehill (Pty) Ltd & others v Community Development Board 1988 (1) SA 290 (A) found that despite the prescribed rate of interest being changed by the Minister during the course of the interest period, the interest rate prescribed at the time the debt became due and payable stays fixed at the same rate.

10 October, 2014

**Please note that these comments are summarised, may not be applicable to your particular situation and do not constitute legal advice. Please consult your legal professional should you wish to obtain a formal legal opinion.**