CONSUMERS reeling from the high cost of living can breathe a sigh of relief after the year-on-year consumer inflation rate decelerated from 7.5 percent in June to 6.9 percent and 6.6 percent in July and August respectively.
This was revealed by Central Bank of Lesotho (CBL) Governor Dr Retšelisitsoe Matlanyane on Tuesday following a meeting by the apex bank’s Monetary Policy Committee (MPC).
She said inflationary pressures were subsiding and expected to follow a downward trajectory until the end of the year.
The apex bank chief attributed the decline to the slowdown in the prices of food and energy in recent months with inflation expected to average 6.9 percent in 2016.
“Good news to consumers is that inflationary pressures are subsiding, and people are beginning to regain their purchasing power. This is mainly due to easing food and oil prices and the appreciating loti,” Dr Matlanyane said.
“Inflation is expected to continue on a downward trajectory for the remainder of 2016 and is expected to average 6.9 per cent over the course of 2016.”
However, she forecast a deterioration in domestic economic performance during the second quarter of 2016.
“The slowdown emanated from the tertiary and primary sectors. For example, slowdown was observed in the retail and wholesale sub-sector as well as the mining and quarrying sub sector.”
Dr Matlanyane also revealed the broad measure of money supply expanded by 8.3 percent in June from 3.0 percent in March due to an increase in both net foreign assets (NFA) and domestic claims.
She said the increase in the NFA was driven by an increase in commercial banks’ deposits abroad. Commercial banks’ domestic claims also increased due to growth in claims on the private sector.
“The current account deficit improved to 8.4 percent of GDP in the second quarter of 2016, compared with a revised deficit of 14.0 percent in the previous quarter.
“This was driven by a reduction in merchandise trade deficit because of lower merchandise imports and slightly higher merchandise exports. The improvement of the current account deficit was also supported by a reduction in payments for services acquired abroad.”
The CBL governor said the gross official reserves declined by 11.9 percent in the second quarter of 2016, reflecting a fall in Southern African Customs Union (SACU) revenue.
“Despite this sluggish performance, measured in months of import cover, official reserves were recorded at 5.9 months in quarter ending in June compared to 5.2 months recorded in the previous quarter as a result of a fall in imports,” she said.
“At the end of June 2016, government budget balance is estimated to have registered a deficit of 13.5 percent of GDP from that of 9.5 percent in March largely driven by a decline in SACU receipts.”
She said while the domestic economic performance during the second quarter was weak and only driven by fewer sectors, the economy remained highly exposed to internal and external shocks.
She said the MPC decided to increase the net international reserves (NIRs) target floor from US$710 million to US$730 million while the CBL Rate has been left at 7.00 percent.
NIRs are assets held by a central bank and denominated in foreign currency or gold for the purpose of intervening in the exchange market to influence or peg the exchange rate.
In Lesotho, the NIRs are used to ensure the value of one loti is equal to one rand since it is pegged to the South African currency.