Tokelo Khausela
THE Central Bank of Lesotho has kept the repo rate unchanged at 7.75 percent.
The decision to keep the rate unchanged brings relief to consumers in Lesotho’s low wage economy.
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 rates on things like personal and vehicle loans, house mortgages, commercial loans, among others.
The Central Bank’s Governor, Maluke Letete, announced the decision to maintain the repo rate at 7.75 percent after the 105th meeting of the bank’s Monetary Policy Committee (MPC) this week.
The MPC however has increased the Net International Reserves (NIR) target floor to US$750 from US$710 million, a target Dr Letete said would be sufficient to maintain a one-to-one exchange rate peg between Loti and the South African Rand.
Because of that peg, Lesotho ‘s monetary policy generally mirrors that of South Africa. In fact, Lesotho’s monetary policy merely replicates South Africa’s.
Dr Letete said the global economy continued to recover from the cost-of-living crisis and the effects of Russia/Ukraine war.
He noted that global growth was expected to slow down from 3.5 percent in 2022 to 3.0 percent in 2023 to 2.9 percent in 2024.
“Despite this resilience, risks remained tilted to the downside emanating from China’s real estate crisis, the possibility of volatile commodity prices due to renewed geographical tensions, stubbornly high inflation and high debt levels.”
Dr Letete added that economic activity in selected advanced and emerging market economies was generally expected to improve in the fourth quarter of 2023 except for the Euro area and United Kingdom.
“Stronger investments and consumer demand were expected to support growth for most selected economies, while persistently high inflation rates and higher interest rates undermined consumer spending in the United Kingdom and Europe while South Africa’s economic activity was expected to be supported by rebounds in the mining and manufacturing sectors, despite the country’s recent continued infrastructure and logistical challenges,” Dr Letete said.
He added: “Inflation rates increased in some selected advanced and emerging market economies while they declined in others in December 2023. The rise in inflation rates was mainly due to the increased prices of food as well as alcoholic beverages and tobacco. As a result, a number of major central banks kept their policy rates unchanged.
“Domestic economic activity was estimated to have contracted in November 2023. This was mainly due to subdued domestic demand and low activity in the transportation subsector. Headline inflation increased to 7.2 percent in December 2023 from 6.8 percent in November 2023. Domestic contributors to the high inflation were food, energy, and clothing prices, while the external drivers were the weak exchange rate and renewed geopolitical tensions. The continued weaker loti, volatile commodity prices and the climate -related events presents risks to the medium-term inflation outlook”
Meanwhile, broad money supply increased in November 2023. This growth was caused by the increase in net domestic assets as well as increased private credit, largely underpinned by credit extended to households, the rise was moderated by the fall in net foreign assets.
Government operations registered a deficit equivalent to 5.6 percent of the Gross Domestic Product (GDP) in November 2023.
Dr Letete added that during the same period the stock of public debt as a percent of GDP marginally declined by 0.3 percent.
“In summary global growth for 2023 slowed down despite the contraction in domestic economic activity in the fourth quarter of 2023. Inflation rate rose in December 2023 and upside risks may emanate from the continued weak Loti and possibility of adverse weather in the near-term” he said.
