In Eswatini, rate cuts may not reduce loan costs
By the AFREEQUE newsroom, based on Times of Eswatini
An International Monetary Fund study finds that cuts to policy rates in Eswatini may not reduce borrowing costs, as banks could increase their margins to protect profitability. The report links this risk to the banking sector’s integration with South African markets and to interest rate movements, according to the IMF.
Cuts to Eswatini’s policy rate may not result in cheaper loans, as commercial banks could increase their margins on new lending. That is the conclusion of an International Monetary Fund (IMF) study on the transmission of monetary policy through the kingdom’s banking sector.
The study finds that a widening negative gap between the Central Bank of Eswatini’s policy rate and the South African Reserve Bank’s rate is associated over time with higher lending rates. Banks may raise their margins to protect income and returns from risks linked to this divergence, which can limit the impact of rate cuts on borrowing, investment and economic activity.
Most loans in Eswatini have variable rates and track the prime lending rate, set at 3.5 percentage points above the policy rate. This arrangement has been in place since September 2003. Policy rate cuts therefore affect the cost of existing variable-rate loans relatively quickly, while banks retain the option of adjusting the margin on new loans according to borrower risk, funding costs and market conditions.
The study, titled “Monetary Policy Transmission Through Banking: Evidence from Eswatini”, was prepared by IMF economist Yumeng Gu. It attributes these mechanisms in part to the integration of Eswatini’s banking sector with South African financial markets. The publication follows an IMF warning about the cost of an EEC bailout in Eswatini, published on 7 October 2026.
Summary produced with the help of artificial intelligence tools, under AFREEQUE’s editorial responsibility.
