What can businesses expect in 2020? South Africa reduces the repo rate

On Wednesday 16 January 2020 the Monetary Policy Committee (MPC) of the South African Reserve Bank announced its decision to reduce the repo rate by 25 basis points to 6.25% per year, effective 17 January 2020.

In the current economic climate, these types of fiscal adjustments are hugely significant and what this decision means is that the rate at which the SARB lends to your bank has decreased from 6.5% to 6.25%.

From an HR and payroll perspective, why is this a discussion point? For employers, the official interest rate applicable to payrolls will be 7.25%, as from 1 February 2020.

The term ‘official interest rate’ defined

As far as direct control over critical resources like HR is concerned, it is always advisable to know exactly what it is that we are dealing with.

According to the Seventh Schedule of the Income Tax Act, the term ‘official interest rate’ is defined as:

• In the case of a loan which is denominated in the currency of the Republic, the South African repurchase (repo) rate + 100 basis points; or
• In the case of a loan which is denominated in any other currency, the South African repurchase rate applicable in that currency + 100 basis points.

New interest rate applies

Where a new repurchase rate or equivalent rate is determined, the new interest rate applies, for the purposes of this definition, from the first day of the month following the date on which that new repurchase rate or equivalent rate comes into operation.

As always, CRS Technologies is available to assist clients in keeping up to date with the practical implications of the adjustment and new interest rate.

Contact our legislation team at info@crs.co.za for any additional information.