Moroke Sekoboto
THE Central Bank of Lesotho (CBL) has kept the repo rate unchanged at 7.75 percent, cushioning hard pressed consumers from immediate interest rate hikes.
The repo rate is the rate at which the central bank lends to commercial banks. An increase in the repo rate immediately translates into increased interest rates on things like vehicle, personal loans, and house mortgages, among others.
The decision to keep the rate unchanged brings relief to hard pressed consumers in Lesotho’s low wage economy.
CBL governor, Maluke Letete, announced the decision to maintain the repo rate at 7.75 percent on Tuesday after the 106th meeting of the bank’s Monetary Policy Committee (MPC).
He said the MPC had also increased the Net International Reserves (NIR) target floor from USD$ 750 million to USD$ 770, a target Dr Letete said would be sufficient to maintain a one-to-one exchange rate peg between the Loti and the South African Rand.
Because of that peg, Lesotho’s monetary policy generally mirrors that of South Africa.
Dr Letete said the global economy continued to recover from the effects of the Covid-19 pandemic. He noted the prevailing geopolitical tensions which had led to the global high cost-of-living.
Dr Letete added the global economy was expected to grow by 3.1 percent in 2024, and 3.2 percent in 2025.
“This was mainly supported by stronger-than-expected growth (of the economy) in the United States in the second half of 2023 as well as strong growth from emerging markets and developing economies,” Dr Letete said.
“Despite this resilient but slow growth, the downside risk include volatility in commodity prices amid geopolitical tensions and weather shocks, faltering Chinese growth and disruptive fiscal consolidations.
“Economic activity generally improved in most selected advanced and emerging market economies during the last quarter of 2023. Strong consumer and government spending, increased manufacturing activity, rebound in tourism as well as increased mining and construction production mainly supported growth.”
Dr Letete said growth declined in the United Kingdom due to persistently higher inflation and interest rates while the slowdown in Japan was due to weak domestic demand.
“Unemployment rates increased in most of the selected economies in January 2024 due to weak economic growth. However, in economies such as the Euro area, the unemployment rate was lower on increased demand for labour in sectors such as service and construction, due to a rebound in activity in these sectors.”
Meanwhile, domestic economic activity contracted in January 2024 in contrast with the preceding month.
“This was mainly due to weak domestic demand, coupled with decline in construction, transport and financial services activity. Improved activity on the supply side, especially the manufacturing sector moderated the fall. Growth is expected to pick up in the medium term underpinned by the construction sector.
“Domestic headline inflation fell to 7.3 percent in February 2024 from 8.2 percent in the preceding month. This reflected slowdown in prices of food, non-alcoholic and alcoholic beverages, and tobacco. However, restaurant and hotels, and transport categories moderated the decline in inflation.
“The continued weaker exchange rate remains the major driver of the higher inflation rate. In the medium term, volatility in commodity prices as geopolitical tensions escalate and climate shocks are major risks to inflation outlook.”
Dr Letete further said the total volume of money supply in the economy (broad money supply) declined in January 2024 after an expansion in the preceding month.
“The decline reflects the fall in net domestic assets supported by the rise in government deposits with the CBL. Nonetheless, the growth in net foreign assets moderated the fall, despite the rise in domestic private sector credit.
“Government operations registered a surplus equivalent to 14.1 percent of GDP in January 2024 mainly due to Southern African Customs Union (SACU) receipts and other revenues. During the same period, the stock of public debts as a percent of GDP declined to 59.5 percent.
“The CBL’s forecasts point towards a growth uptick in 2024, as the LHWP II reaches its peak over 2024-2025. The increasing construction activity is also expected to have positive spillovers to support services sector activity. Overall growth is projected at 3 percent in 2024, slowing to 1.1 percent in 2026, as LHWP II winds down.
“In summary, the global growth is expected to pick in 2024 but risks to the outlook linger in the medium term. Despite the contractions in January 2024, domestic economic activity is expected to pick up in the medium term. Inflation rate declined but climate shocks and continued weaker exchange rate are expected to drive the inflation outlook,” he said.
