Moroke Sekoboto
THE Central Bank of Lesotho (CBL)’s Monetary Policy Committee (MPC) has given consumers major relief by reducing the repo rate by 25 basis points from 7.75 percent to 7.5 percent.
The repo rate, which is the rate at which the central bank lends money to commercial banks, directly impacts interest rates on loans for vehicles, personal needs, and mortgages, among others.
CBL Governor, Maluke Letete, said the MPC had resolved at its 110th meeting to lower the repo rate by 25 basis points.
In turn it also increased the Net International Reserves (NIR) target floor from USD 750 million to USD 770 million. This adjustment, Dr Letete explained, ensures the sustainability of the one-to-one exchange rate peg between the Loti and the South African Rand.
Dr Letete provided an optimistic forecast for the global economy, projecting growth of 3.2 percent in 2025.
“This reflects upward revisions in United States (US) growth, counterbalanced by downgrades in parts of Europe and commodity-exporting nations,” Dr Letete said.
“Growth in emerging economies, particularly China and India, is expected to be driven by advancements in artificial intelligence. However, risks such as persistent inflation, geopolitical tensions, and financial market volatility due to elevated global interest rates remain,” he said.
The governor highlighted variations in labour market performance across key economies during the third quarter of 2024. While unemployment remained stable in the US, United Kingdom (UK) and China, it declined in the euro area and Japan, thanks to job growth in pivotal sectors.
“Inflation trends were mixed, with most economies experiencing rising inflation due to increasing energy, food, and shelter prices in October 2024. In contrast, South Africa saw declining inflation, driven by lower fuel and food costs and a stronger exchange rate.”
Dr Letete said many countries had cut policy rates (WHAT ARE THESE DURING) this period, with some short-term yields decreasing, particularly in the euro area.
Lesotho’s economy contracted by 1.5 percent in the third quarter of 2024, following a 1.8 percent expansion in the preceding quarter. The downturn was attributed to weak domestic demand and contractions in the manufacturing and construction sectors. Growth for 2024 is projected at 2.4 percent, slightly declining to 2.1 percent in 2025.
Inflation in Lesotho eased in October 2024, primarily due to declining fuel and food prices and the appreciation of the rand.
“However, relatively high and elevated food prices are expected to remain a risk to the inflation outlook in the near term. The broad money supply declined moderately in the third quarter of 2024, underpinned by a fall in transferable deposits held by the business sector. On the other hand, private sector credit increased primarily driven by banks’ lending to households, while credit to business enterprises declined.
“The government recorded a budget surplus of 12.7 percent of GDP in the third quarter, attributed to higher revenues despite increasing expenditures. Public debt as a percentage of GDP decreased marginally to 54.7 percent from 55.2 percent, aided by the appreciation of the loti.”
He said the external sector also performed well, maintaining a surplus due to increased Southern African Customs Union (SACU) receipts and water royalties. Foreign reserves rose, providing 4.7 months of import cover.
“CBL’s Net International Reserves increased by approximately USD 110.14 million between September and November 2024. This growth was fuelled by higher SACU receipts and water royalties, with reserves expected to remain healthy in the near to medium term.”
Dr Letete expressed confidence in the global economy’s resilience despite short-term challenges. Domestically, while growth remains weak, it is anticipated to strengthen in the medium term, albeit driven primarily by the construction sector.
“While global inflation is projected to ease, inflation in the services sector remains elevated and persistent. Domestically, growth remains uneven, with some sectors continuing to face challenges,” Dr Letete said.
