CBL hikes interest rates to counter inflation

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Bereng Mpaki

THE Central Bank of Lesotho (CBL) has increased the CBL rate by 0, 25 percent from four percent to counter the spiking inflation rate.

Inflation shot up to 7, 5 percent in February 2022 up from 6, 8 percent in December 2021.

The 6, 8 percent inflation rate was the highest it had been since 2016.

Acting CBL Governor, Lehlomela Mohapi, this week told the media in Maseru that hiking the CBL rate was meant to curb inflationary pressures that had partly been caused by the on-going Russia – Ukraine war.

He said the war was expected to worsen the global macroeconomic environment, and had already prompted many central banks to tighten their monetary policies.

“The war came at the turning point where global economic recovery was gaining traction amid growing inflationary pressures,” Mr Mohapi said.

“This is likely to further heighten inflation mainly through higher energy and food prices.

“We closed 2021 with an inflation rate of 6, 8 percent but now we are at 7, 5 percent. Prior to the 6, 8 percent rate, the last time we experienced such a high inflation rate was about six years ago. We have been consistently keeping our inflation rates below six percent for a long time but now it has got out of hand.”

To curb further increases, the CBL increased as has been done by many major central banks around the globe, he said.

He said global financial market indicators had displayed mixed signals with short term yields rising in both advanced and emerging economies, while yields in the long end of the market remained muted.

In relation to domestic price developments, inflationary pressures remained elevated.

“Having considered the net international reserves (NIR) developments and outlook, regional inflation and interest rate outlook, domestic economic conditions and the global economic outlook, the MPC has increased the current net international reserves target floor to US$820 million from US$790 million.

“At this level, the NIR target will remain consistent with the maintenance of the exchange rate peg between the loti and the South African rand.

“The CBL has also increased the CBL rate from four percent to 4, 25 percent per annum. The rate, set at this level, will ensure that that the domestic cost of funds remains aligned with the rest of the region,

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