Moroke Sekoboto
THE Central Bank of Lesotho (CBL) has maintained the repo rate at 7.75 percent, fostering relief to consumers in Lesotho’s comatose economy.
The repo rate is the rate at which the central bank lends to commercial banks. An increase in the repo rate typically results in higher interest rates on things like personal, vehicle, home loans, and commercial loans.
CBL Governor, Maluke Letete, announced the decision to maintain the repo rate at 7.75 percent following the 108th meeting of the bank’s Monetary Policy Committee (MPC) on Tuesday.
The MPC has also maintained the Net International Reserves (NIR) target floor at US$760 million, a level Dr Letete said would support the one-to-one exchange rate peg between the Loti and the South African Rand. Because of this peg, Lesotho’s monetary policy generally mirrors that of South Africa.
Dr Letete said the July 2024 International Monetary Fund (IMF) growth projections for the global economy remained relatively unchanged from the April 2024 projections.
The global economy is forecast to grow by 3.2 percent in 2024, with a slight upward revision to 3.3 percent in 2025, he said.
“This growth is expected to be driven largely by strong performance in emerging markets and developing economies such as India and China. Risks to global growth include elevated inflation, renewed trade tensions, and escalating geopolitical conflicts,” Dr Letete said.
“Economic activity varied for most advanced and emerging market economies in the first quarter of 2024. In advanced economies, economic activity improved, primarily driven by strong domestic demand, except in Japan and the United States. Growth in emerging markets and developing economies remained robust due to stronger industrial production, except in South Africa, which faced weak demand both externally and domestically,” Dr Letete added.
Dr Letete said inflation rates declined in most selected economies in June 2024 due to falling energy costs.
“Most central banks left monetary policy rates unchanged, except the European Central Bank and the People’s Bank of China, which cut their policy rates in June and July 2024, respectively.
“Both long-term and short-term bond yields declined, driven by falling inflation rates and stable policy rates in the selected economies. In South Africa, yields declined mainly due to improved risk sentiment and increased demand for its securities.
“Domestic economic activity grew for the second consecutive month in May 2024, registering 1.0 percent growth following a 0.9 percent increase in April 2024. This growth was primarily driven by stronger performance in the construction and financial services sectors.”
However, Dr Letete indicated that domestic demand and manufacturing sector activity moderated the expansion.
“In the near term, growth is expected to be stronger, mainly due to Lesotho Highlands Water Project (LHWP) construction activity and its spillover effects on the services industries. Domestic headline inflation rose to 6.5 percent in June 2024 from 6.3 percent in May 2024, with the major contributor being food and non-alcoholic beverages. Nonetheless, the weaker exchange rate remains a challenge to elevated domestic headline inflation,” he said.
Dr Letete also reported that the money supply (M2) remained unchanged in May 2024 from the previous month, reflecting a decrease in transferable deposits held by other financial corporations, offset by an increase in household savings and deposits. Despite this, private sector credit grew, supported by ongoing construction activities around the country.
Meanwhile, government operations registered a deficit of 1.7 percent of GDP in May 2024 due to relatively higher government spending.
“During the same period, the stock of public debt as a percentage of GDP declined to 52.4 percent from a revised 53.0 percent in the preceding month.
“The CBL’s Net International Reserves (NIR) increased by approximately US$119.29 million between May 2024 and 18 July 2024, mainly due to SACU receipts and increased water royalties. The NIR is expected to improve over the next three quarters to March 2025, with cyclical peaks and troughs. In summary, global growth is expected to remain resilient in 2024 amid risks to the outlook. The domestic economy grew modestly but is expected to expand in the medium term,” Dr Letete said.
