CBL lowers repo rate to 7 percent

Moroke Sekoboto

THE Central Bank of Lesotho (CBL)’s Monetary Policy Committee (MPC) has once again provided relief to consumers by reducing the repo rate by 25 basis points—from 7.25 percent to 7 percent.

The decision aims to align monetary policy with current domestic economic conditions and the broader regional monetary environment.

The repo rate is the interest rate at which the central bank lends money to commercial banks, thereby influencing interest rates on loans for vehicles, personal needs, mortgages, and other financial products. A lower repo rate translates to lower borrowing costs for consumers.

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 further decreased the rate to 7.25 percent on 4 February 2025 and has now reduced it again to 7 percent, offering additional relief.

CBL Governor, Maluke Letete, announced the decision following the MPC’s 113th meeting this week.

The committee also resolved to reduce the Net International Reserves (NIR) target floor from USD840 million to USD830 million. Dr Letete explained that the adjustment helps ensure the sustainability of the one-to-one peg between the Loti and the South African rand.

Dr Letete said global economic performance was mixed in the first quarter of 2025.

“While major economies grew, momentum was uneven. The United States and the United Kingdom lost steam due to weaker consumer and government spending, respectively,” Dr Letete said.

“In contrast, the Euro area remained stable, supported by domestic demand, while Japan benefited from strong exports.”

According to the International Monetary Fund (IMF), global growth is now forecast at 2.8 percent in 2025, a downgrade driven by rising trade tensions and protectionist measures that are weighing on investment and business confidence.

“This dimmer outlook reflects mounting trade barriers, particularly tariffs, which are beginning to choke investment flows and erode business confidence. The risks are many: shaky financial markets, uncertain policy direction, slowing productivity, and escalating geopolitical stress,” Dr Letete said.

He also highlighted divergent inflation trends across major economies.

“In South Africa, inflation edged up modestly due to rising food and transport costs. In response, most central banks have cut interest rates to stimulate growth while maintaining a cautious stance amid persistent inflationary pressures and ongoing global trade tensions, particularly those linked to US tariffs.”

On the domestic front, Dr Letete said Lesotho’s economy contracted by 5.3 percent in the first quarter of 2025. This was attributed to weak household consumption, reduced government spending, and sluggish performance in the transport and construction sectors.

“While the manufacturing and financial services sectors showed some resilience, bolstered by textile exports and credit growth, overall momentum remains fragile. The outlook is clouded by rising tariffs affecting textiles, the withdrawal of key development support such as the Millennium Challenge Corporation (MCC), and continued weakness in the diamond market.”

Inflation in Lesotho eased slightly in April 2025, dropping to 4.0 percent from 4.2 percent in March. Dr Letete explained that this relief came as global oil prices softened and the loti appreciated against the US dollar, resulting in lower fuel costs. Food prices remained steady, offering some stability for households.

He said inflation was expected to remain contained, although risks remain.

“Rising global trade tensions and policy uncertainty could still exert upward pressure on prices.”

From a fiscal perspective, Dr Letete said Lesotho maintained a disciplined and supportive stance in the first quarter of 2025, achieving a 12.9 percent budget surplus despite weaker VAT collections linked to compliance challenges. The government continued countercyclical spending, prioritising infrastructure development and social support.

Public debt declined to 53.8 percent of GDP, supported by bond redemptions and external repayments, signalling a strong commitment to fiscal sustainability. This prudence also created space for private sector growth, with improved banking sector liquidity supporting increased credit extension.

The governor said Lesotho’s current account surplus narrowed to 0.7 percent of GDP in Q1 2025, reflecting weaker exports and rising service outflows. Despite resilient income inflows, the trend highlights increasing pressure on external sustainability. Nonetheless, reserves remain healthy at 5.3 months of import cover, buoyed by strong SACU receipts and prudent reserve management, which continue to anchor external confidence.

“The CBL’s Net International Reserves increased by approximately USD 40.30 million – from USD 1,028.90 million on 13 March 2025 to USD 1,069.21 million on 21 May 2025 – mainly driven by SACU receipts. The NIR position is projected to improve further in the near to medium term.”

He said global growth is expected to remain fragile amid persistent trade barriers and heightened uncertainty. Similarly, domestic growth remains subdued, reflecting the adverse effects of tariffs on Lesotho’s exports and underperformance in key economic sectors.