CBL hikes interest rates

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Bereng Mpaki

THE Central Bank of Lesotho (CBL) this week increased the CBL rate to 3, 75 percent from 3, 5 percent to align it with prevailing regional rates.

The decision comes days after the South African Reserve Bank made a similar decision to hike the repo rate by the same margin to 3, 75 percent on 18 November 2021.

The increase of the CBL rate, which is the interest rate at which commercial banks borrow funds from the CBL, will counter possible capital outflows that would hurt the economy, the CBL said this week.

Addressing journalists in Maseru, CBL governor, Retšelisitsoe Matlanyane, said the move would result in a slight increase in the cost of credit, although this may not be immediately felt by consumers. This because commercial banks are not immediately likely to borrow from the CBL thereby incurring the increased interest rates.

Dr Matlanyane said this following the CBL monetary policy committee’s (MPC) latest review of the country’s monetary policy in line with recent global economic developments.

“The MPC decided to increase the CBL rate from 3, 5 percent per annum to 3, 75 percent per annum,” Dr Matlanyane said.

“The rate, set at this level, will ensure that the domestic cost of funds remains aligned with the rest of the region.

“What it means to the consumers of credit is that they should expect a little tick up in the interest rates. However, this does not mean that the banks will be immediately affected as our banks are sufficiently liquid and do not as yet need to borrow funds from the CBL.”

She said the hike would also help deter over-borrowing.

“What this also means for us is that it will help us to contain indebtedness in the economy. Our aim is to especially contain household or consumer indebtedness.”

The apex bank also maintained the net international reserves (NIR) target floor at US$760 million.

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

The CBL said domestic economic activity slowed by 1, 1 percent in the third quarter of 2021, compared to a 3, 7 percent increase recorded in the preceding quarter.

This was attributed to the negative growth in the manufacturing and production side of the economy, which was moderated by an improvement of the demand side, Dr Matlanyane said. She added that domestic economic recovery remained largely conditional on developments related to the trajectory of virus infections, Covid-19 containment measures and the rollout of vaccines. Possible spikes in infection rates could bode negatively for growth and general economic recovery in the short to medium term.

Inflation on the other hand climbed to 6, 2 percent in October 2021 from 5, 4 in September 2021, spurred by price increases in “food, electricity, gas, other fuels and transport subcomponents.”

“Domestically, any prospects for growth have to be weighed against existing uncertainties. The committee notes gains and progress made on vaccination and encourages the maintenance of the pace to pave way for the easing of restrictions and attainment of herd immunity. Risks to the domestic economic outlook include the possible spread of Covid-19 and the effectiveness of the infection control measures, exposure to international economic developments, domestic structural rigidities and policy uncertainty,” Dr Matlanyane said.

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