After remaining at 15.5% for 21 years (since 1993), the Prescribed Rate of Interest was changed to 9%, as of 1 August 2014. However, it would appear that the legislature has now sought to further underline the rate’s correlation to the repurchase rate (“repo rate”), with the Judicial Matters Amendment Act 24 of 2015 (“the Amendment Act”) now amending the Prescribed Rate of Interest Act 55 of 1975.
The net effect of the amendment is that the prescribed rate of interest is now officially linked to the repo rate and calculated as the repo rate plus 3.5%.
At present, this rate is therefore 10.25% (confirmed by the Minister of Justice in Government Notice 266 of 2016) based on a repo rate of 6.75% plus 3.5%.
The Amendment Act states that the new prescribed rate of interest becomes effective from the first day of the second month following the month of the repo rate changes. Therefore, as the repo rate was again increased on 18 March 2016, the Prescribed Rate of Interest rate will now increase to 10.5% from 1 May 2016 (to be confirmed by the Minister).
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.
Accordingly, the rate applicable to the debt is the rate which was applicable at the time the debt became due and payable, i.e. when the debtor was in mora. Practically speaking, this is the date on which the time allowed for payment of a debt expires (usually set forth in a letter of demand).
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.