Moroke Sekoboto
THE Central Bank of Lesotho (CBL)’s Monetary Policy Committee (MPC) has once again given major relief to consumers by reducing the repo rate by another 25 basis points from 7.5 percent to 7.25 percent.
This decision aims to align with prevailing domestic economic conditions and the broader regional monetary policy environment.
The repo rate, which is the interest rate at which the central bank lends money to commercial banks, directly affects interest rates on loans for vehicles, personal needs, mortgages, and other financial products. The more the repo rate, the more interest rates consumers are charged for their loan facilities.
The CBL had maintained the repo rate at 7.75 percent from May 2023 until November 2024, when it reduced it to 7.5 percent. It has now further lowered it to 7.25 percent, providing additional relief for consumers.
The CBL Governor, Maluke Letete, announced the decision this week following the MPC’s 111th meeting.
The committee also resolved to increase the Net International Reserves (NIR) target floor from USD$770 million to USD$840 million. Dr Letete explained that this adjustment ensures the sustainability of the one-to-one peg between the Loti and the South African Rand.
Dr Letete gave an optimistic forecast for the global economy, projecting growth of 3.3 percent in both 2025 and 2026.
“The January 2025 World Economic Outlook (WEO) update by the IMF projects global economic growth to be 3.3 percent for both 2025 and 2026. This projection is based on modest upward adjustments to US growth, driven by strong wealth effects and a less restrictive monetary policy stance,” Dr Letete said.
He stated that weakened manufacturing activity and policy uncertainties, particularly in Germany and France, were expected to weigh on these projections. “Additionally, risks to growth persist due to trade policy uncertainties from the new Trump administration, renewed inflationary pressures from potential trade tariffs, intensifying geopolitical tensions, and subsequent increases in commodity prices,” Dr Letete said.
He noted that in the fourth quarter of 2024, economic activity varied across selected advanced and emerging market economies.
“Both the UK and the US economies slowed down due to weaker investment and external demand. The Euro area stagnated due to weaker consumer demand and trade challenges. Conversely, Japan’s economic recovery was underpinned by stronger wage growth. China’s economic activity expanded mainly due to stimulus packages and strong domestic demand, while robust services and infrastructure investment supported India’s growth.”
He said the South African economy was expected to rebound, mainly supported by normal agricultural production and stronger consumer spending.
“In December 2024, inflation rose in the US and Japan, mainly due to higher energy, food, and housing costs. Meanwhile, the rise in inflation in South Africa and the Euro area was primarily due to rising costs of services and utilities. Most central banks kept policy rates unchanged, except for the European Central Bank and the South African Reserve Bank, which cut their policy rates, while the Bank of Japan raised its policy rate. Short-term yields fell due to lower interest rates, while long-term yields rose.”
Dr Letete said the domestic economic activity was estimated to have expanded by 3.1 percent in November 2024, up from 1.5 percent in October 2024.
“This growth was primarily driven by stronger domestic demand, supported by both consumer spending and robust export growth. Despite challenges in the construction subsector, expansion was broad-based. Looking ahead, growth is expected to remain steady but uneven in the medium term, amid uncertainty in the export market,” Dr Letete said.
He said the domestic inflation rate eased to 3.7 percent in December 2024 from 4.4 percent in the preceding month. This mainly reflected declining food and fuel prices in the international market, which were supported by a stronger currency.
“Broad money supply increased in the fourth quarter of 2024, driven mainly by a rise in transferable deposits held by the business sector. Private sector credit also expanded, reflecting higher lending to both households and business enterprises.”
He said the government’s budgetary operations recorded a deficit of 4.8 percent of GDP in November 2024, driven by a decline in revenue that outpaced the reduction in expenditure. Meanwhile, the public debt stock as a percentage of GDP rose to 56.2 percent from a revised 55.7 percent in the previous quarter, reflecting disbursements for ongoing foreign-funded projects.
“Between the previous meeting in November and today’s sitting, the CBL’s Net International Reserves (NIR) increased by approximately USD 42 million. This was mainly driven by higher SACU receipts during the review period. At current levels, the stock of reserves provides for 4.7 months of import cover.”
“In summary, global growth showed moderate progress in 2024 that is set to be maintained looking ahead into 2025. However, the intensification of protectionist policies remains a major risk. Domestically, growth is expected to be underpinned by construction-related activities in the medium term, amid growing uncertainty as a result of the Trump administration on the global stage,” Dr Letete said.
