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(Xinhua) -- South African Reserve Bank increased the repurchase rate by 25 basis points to 6.75 percent per annum on Thursday for the first time in two years.

 

South Africa's repo rate has been at 6.5 percent since March this year when it was cut by 25 basis points.

 

The repo rate is the benchmark interest rate at which the central bank lends money to other banks. Changes in the repo rate affect the prime lending rate, which is the rate banks use as a starting point to calculate interest rates for their clients.

"Since the previous meeting of the monetary policy committee, the near-term inflation outlook has improved; however, the longer-term risks to the inflation outlook remain elevated. The weaker exchange rate and the impact of higher oil prices contributed to increasing inflation since March 2018. At the same rate, domestic growth remains weak," Reserve Bank Governor Lesetja Kganyago said.

 

"South Africa's inflation is still within the Reserve Bank target of 3 percent-6 percent, but the economic growth has been revised downwards, it was anticipated by many economists that central bank would leave the repo rates unchanged," Lukman Otunuga, research analyst at FXTN, a company for research in economics, told Xinhua on Thursday.

 

South Africa's inflation surged to 5.1 percent in October, still with the Bank's target band, but the Reserve Bank's monetary policy committee said it wanted inflation to be 4.5 percent mid-point.

 

Last week the International Monetary Fund warned the bank of the stubborn inflation and urged the bank to maintain that mid-point in an order to boost the sluggish economy.

 

"The hike in interest rates could bolster the local currency's purchasing power while attracting foreign direct investment," Otunuga added.

 

He pointed out that move could have been the direct effect of fuel prices.

 

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