THE Governor of the Central Bank of Lesotho (CBL), Retšelisitsoe Matlanyane, says the country’s low production capacity is a risk to its economic development.
She also said following the recent sitting by the bank’s monetary policy committee’s (MPC), they have decided to increase the net international reserves (NIR) target floor from US$745 million to US$765 million.
Dr Matlanyane said this while addressing the media after the MPC’s meeting this week.
She said the global economic growth momentum has slowed while domestic growth remains subdued on the back of a moderate inflation rate.
“In summary, the global economic growth momentum is slowing down while domestically, growth remains subdued and the inflation rate continues to be moderate,” Dr Matlanyane said.
“Risks to the outlook include exposure to global economic developments, subdued domestic consumer demand and low production.
“Having considered the above developments, the MPC has decided to increase the net international reserves (NIR) target floor from US$745 million to US$765 million. The MPC has also decided to maintain the CBL rate at 6, 75 percent per annum.
“The committee will continue to monitor the global developments and their likely impact on domestic macroeconomic conditions, especially the CBL net international reserves (NIR) with the aim of taking corrective action when needed.”
Dr Matlanyane said while economic activity increased by 0, 7 percent in December 2018, production actually weakened during the same period.
The MPC regularly considers international, regional and domestic economic developments to determine appropriate monetary policy action needed to maintain price stability in the country. Sittings are done on a bi-monthly basis.
Dr Matlanyane further indicated that other risks to the country’s economic outlook are the global developments and subdued consumer demand. She said the global economy is actually expected to slow down in 2019.
“Risks to the outlook include exposure to global economic developments, subdued domestic consumer demand and low production,” Dr Matlanyane said adding that the unstable performance of the loti against other world currencies could also pose possible risks to the country’s economic outlook.
“On the domestic economy front, economic activity increased in January 2019 relative to the previous month. The CBL measure of economic activity indicated that output increased by 0, 9 percent in January 2019, compared to an increase of 0, 7 percent last December.
“Economic activity was mainly supported by higher domestic demand, while production weakened. On the labour market front, employment by the LNDC assisted firms declined by 2, 2 percent on an annual basis in the fourth quarter of 2018. In addition, the number of Basotho migrant workers in the South African mining industry continued to fall,” Dr Matlanyane said.
She further indicated that inflation has remained constant in January and February, although there were goods categories that reflected slightly higher prices in February.
“The annual rate of inflation, measured by the change in the consumer price index (CPI) for all items, remained unchanged at 5 percent between January and February 2019.
“Higher price increases in February than in January were observed in the “food and non-alcoholic beverages”, “clothing and footwear” and “transport” while the rest of the categories moderated.
“While the loti displayed mixed performance against the major currencies during the review period, the exchange rate is expected to continue posing risks to the outlook.
“The total amount of money that circulated in Lesotho’s economy declined by 4, 2 percent in January 2019. This is in contrast with a 2, 2 growth during December 2018 as a result of a fall in both net domestic claims and net foreign assets.
“Government budgetary operations culminated in a surplus of 5, 7 percent of GDP in January 2019 following a smaller surplus of 0, 9 percent of GDP in December 2018, as revenue increased, boosted by SACU receipts.
“Lesotho’s fixed exchange rate system under the common monetary area CMA requires a healthy fiscal position to support maintenance of the exchange rate parity,” Dr Matlanyane said.