Hopolang Mokhopi
CONSUMERS have been spared the wrath of economic inflation as the Central Bank of Lesotho’s Monetary Policy Committee (MPC) has kept the repo rate unchanged at 7.75 percent.
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, house mortgages, among others.
The Central Bank’s Governor, Maluke Letete, announced the decision to maintain the repo rate at 7.75 percent after the MPC’s 107 meeting on Tuesday.
However, the MPC has decreased the Net International Reserves (NIR) target to USD$760 million from USD$770 million. This he said would still be sufficient to maintain a one-to-one exchange rate peg between the Loti and Rand.
Dr Letete added that the global economy was expected to grow by 3.2 percent in both 2024 and 2025.
This is expected to be driven mainly by a slight pickup of growth in advanced economies to offset a moderate slowdown in emerging markets and developing economies.
“Risks to growth are expected to emanate from new and increased commodity price volatility as geopolitical tensions and weather shocks increase, high interest rates, high public debt levels and China’s enduring property sector downturn,” Dr Letete said.
“Economic activity generally improved in most selected advanced and emerging market economies in the first quarter of 2024, although modestly in some, except for Japan. The improvement was mainly due to increased consumer and government spending as well as strong services sector performance. Conversely, growth in Japan was negatively affected by the high inflation rate and adverse weather shocks.
“South Africa’s economic performance is expected to have weakened due to an enduring energy crisis and logistical constraints that negatively affected both mining and manufacturing output in the first quarter of 2024.
“Labour markets conditions in some of selected economies worsened slightly. The United Kingdom unemployment rate rose on the back of long-term health concerns, while the skills mismatch in China raised unemployment rate during the first quarter of 2024.”
Dr Letete also said inflation had decreased in most key economies, except China where it rose in April.
“The fall in inflation rates in advanced economies mainly reflected falling prices of food and other forms of energy, except crude oil. Moreover, weaker demand in the United States dampened inflationary pressures, while China’s rising inflation rate was boosted by stronger domestic demand. In South Africa, the declining inflation rate reflected a fall in food prices due to improved supplies and moderated prices of key commodities like meat, rice, and vegetable oils.
“As a result of falling but persistently high inflation rates, most of the central banks left policy rates unchanged except Japan, which increased its policy rate.”
Domestic economic activity slowed down in the first quarter of 2024 from a stronger expansion in the preceding quarter, he added.
“This mainly reflected weak consumer demand, coupled with the slowdown in the manufacturing and production sub-sector. Although the financial sector experienced moderate growth, overall growth was dampened by a contraction in construction activity. Lesotho’s growth outlook is expected to maintain a moderate growth path over the medium-term at an average of 2.0 percent,” he said.
Governor Letete said alcohol and tobacco taxes introduced by the government in March last year had caused the domestic headline inflation to fall to 7.1 per cent in April from 7.4 per cent in March 2024.
“Nonetheless, prices of food, energy, restaurants and hotels moderated the fall in the inflation rate. The major drivers of the increased price pressures were adverse weather conditions in Southern Africa which negatively affected food prices, weak exchange rate and strong global demand for oil.
“Broad money supply increased in the first quarter of 2024, following a moderate increase in the previous period. This mainly reflected increased net domestic assets, which was buoyed by the issuance of treasury bonds.”
However, he said the net foreign assets had fallen due to lesser placements of assets by commercial banks abroad, thus moderating the increase in broad money supply. Domestic private sector credit also increased, mainly reflecting increased household credit.
“Government operations registered a surplus equivalent to 7.5 per cent of GDP in the first quarter of 2024 mainly due to receipt of rand monetary compensation, higher water royalties and increased income tax revenue. During the same period, the stock of public debt as percent of GDP declined to 57.4 per cent.
“The external sector position improved in the first quarter of 2024 due to higher water royalties. Consequently, the level of foreign reserves increased from M15.04 billion in the fourth quarter of 2023 to M15.20 billion in the first quarter of 2024. The NIR outlook is expected to remain robust bolstered by increased SACU receipts and water royalties.
“In summary, global growth is expected to pick up in 2024 with risks to the outlook. The domestic economy continued to remain weak while inflationary pressures were abating. However, expected adverse weather shocks and weak exchange rate are expected to negatively affect the inflation outlook. NIR position is expected to maintain a robust position due to the water royalties windfall,” Dr Letete said.
