Bereng Mpaki
THE Central Bank of Lesotho (CBL) has revised its CBL rate from 6.75 percent to seven percent in response to recent adverse global and domestic economic developments.
Central banks revise benchmark interest rates regularly to ensure price stability and help governments achieve economic growth targets. The CBL rate is the benchmark interest rate which, among others, determines the cost of borrowing from commercial banks.
Addressing a news conference on Tuesday following a meeting by the apex bank’s Monetary Policy Committee (MPC), CBL Governor Dr Retšelisitsoe Matlanyane said the new CBL rate and the Net International Reserves (NIR) target floor of US$600 million would bring about macroeconomic stability by ensuring an exchange of one loti for one rand.
“Having considered the above economic developments and outlook, the committee decided to maintain the NIR target floor of US$600 million and increase the CBL Rate by 25 basis points from 6.75 percent to 7 percent. This would ensure that the Loti would be adequately underwritten,” she said.
On the global outlook, Dr Matlanyane said economic activity remained subdued with the economy of the United States slowing down in the fourth quarter of 2015. She said while an improvement was expected in economic powerhouse’s economy in the first quarter of 2016, it would “remain below its potential”.
“A more favorable economic outlook is expected in the Euro Area and the UK during the same period,” the CBL boss noted.
“Considering some emerging market economies, prospects for China continued to remain uncertain.”
She said Lesotho and the rest of the Common Monetary Area (CMA) were also weighed down by the sluggish growth in the South African economy. The CMA links South Africa, Namibia, Lesotho and Swaziland into a monetary union.
“The neighboring South African economy slowed down with an annualised growth rate of 0.06 percent during the fourth quarter of 2015,” said Dr Matlanyane.
“This was due to domestic supply constraints coupled with weak export demand as well as heightened risk in investor confidence. Monetary policy stance tightened in the CMA region in response to deteriorating inflation outlook.”
She noted that domestic output growth would continue to slow down with gross domestic product (GDP) only increasing by 2.8 percent in 2015 compared to 3.6 percent in 2014.
Domestic inflationary pressures, Dr Matlanyane said, were building up with the year-on-year consumer inflation rate rising from 5.1 percent in December 2015 to 5.8 percent in January 2016.
“This is attributable to increasing food prices due to (the) weaker exchange rate and the effects of the drought. In terms of the outlook, inflation is expected to continue on an upward trajectory in 2016,” she said.
She also touched on money supply, saying it expanded by 0.1 percent during the fourth quarter of 2015.
“This was caused by a decline in domestic claims and a slow growth in Net Foreign Assets (NFA). Money market interest rates remained broadly aligned to their regional counterparts,” said the apex bank chief.
“Current account deficit widened to 13.7 per cent of GDP in the fourth quarter of 2015 as a result of a rise in imports and a decline in exports. However, the deficit was moderated by the growth in the income account due to an increase in portfolio investments abroad.”
Dr Matlanyane said the country’s forex reserves had increased due to the depreciation of the Loti against the major currencies.
“Gross official reserves rose by 5.7 percent in the fourth quarter of 2015, driven largely by gains from depreciation of the local currency (Loti/Rand) against major currencies in which official reserves are held. In months of import cover, reserves fell slightly from 6.0 months to 5.9 months in the quarter ending December 2015,” she said.
“For the quarter ending December 2015, government budget balance improved to a deficit of 0.1 per cent of GDP from a deficit position of 6.1 per cent of GDP during the quarter ending September 2015.
“This was a result of revenue that had increased by 12.7 percent while expenditure increased by 2.6 percent.”
