Goodbye from The Guv

By Staff Writer

Tito Mboweni who has guided the Reserve Bank as Governor leaves the post at the end of October. He has been recently speaking at the Annual General meeting of the Reserve Bank. There were not as many fireworks as in 2008 but by all accounts a lively meeting took place. So what is it that the Reserve Bank actually does?

 

 

  • Sets the interest rate
  • Controls the money supply
  • Deals with price stability

 

The Reserve Bank is the bank that lends to the commercial banks, the commercial banks are the ones that lend to consumers. The Reserve Bank sets the main interest rate which is known as the Repo rate. It currently stands at 7 percent. The commercial banks then add a profit margin to this which is known as the Prime rate.

The Prime rate is variable but there is a feeling from the commercial banks that it should be 3.5 percent above Repo. The Prime rate can be negotiated with the commercial banks in individual lending deals but as a rule of thumb it is 3.5 percent above Repo. The commercial banks have said that this is what the Reserve Bank wants but the Reserve Bank does not entirely agree.

So how does any of this affect you? Your homeloan is the most likely place and as and when interest rates change then you should be able to get a better bond interest rate. You can contact a mortgage specialist to re-negotiate this for you. With Mboweni leaving soon, and with two more interest rates meetings to come, there may not be any more interest rate changes until November, but be prepared to take advantage if there are.

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