Moroke Sekoboto
THE Central Bank of Lesotho (CBL) has kept the repo rate unchanged at 7.75 percent, cushioning hard pressed consumers from immediate interest rate hikes.
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, and house mortgages, among others.
The decision to keep the rate unchanged brings relief to hard pressed consumers in Lesotho’s low wage economy.
CBL governor, Maluke Letete, announced the decision to maintain the repo rate at 7.75 percent after the 104th meeting of the bank’s Monetary Policy Committee (MPC), this week.
The MPC had also left the Net International Reserves (NIR) target floor unchanged at US$ 710 million (M13.1 billion), a target Dr Letete said would be sufficient to maintain a one-to-one exchange rate peg between the Loti and the South African Rand.
Because of that peg, Lesotho’s monetary policy generally mirrors that of South Africa.
Dr Letete said that the global economy continued to recover from the effects of the Covid-19 pandemic. He noted the prevailing geopolitical tensions which had led to the global high cost-of-living.
Dr Letete added that economic activity in selected advanced and emerging market economies generally slowed down in the third quarter of 2023, except for the United States.
“The slow down in growth was mainly driven by weak consumer demand and investments. South Africa’s economic activity was expected to remain muted, as the power crisis continued to cripple key sectors such as mining and manufacturing,” Dr Letete said.
“Inflation rates generally declined in selected advanced and emerging market economies in October 2023 but largely remained above the target levels. Nonetheless, South Africa’s inflation rate rose as a result, most central banks kept their policy rates unchanged in their latest policy decisions.
“Domestic economic activity rebounded in the third quarter of 2023. This is due to a pickup in demand as well as improved performance in construction and services, particularly transport,” Dr Letete said.
“Domestic inflation increased to 6.5 percent in October 2023 from 5.8 percent in September 2023. Food and energy prices coupled with weak exchange rate were the main contributors to the rise in inflation. The continued weaker Loti, volatile crude oil prices, administered prices as well as El Nino presents upside risks to the medium-term inflation outlook.”
Meanwhile, broad money supply increased in the third quarter of 2023. This growth was supported by the increase in Net Foreign Assets (NFA) and Net Domestic Assets (NDA). The increase in NFA and NDA was driven by redemption of government securities and credit extension by commercial banks. The rise in private sector credit was observed in credit to households and business enterprises.
Government operations registered a surplus equivalent to 2.5 percent of the Gross Domestic Product (GDP) in the third quarter of 2023.
Dr Letete added that during the same period, the stock of public debt declined to 59.9 percent of GDP from 61.4 percent, due to amortization and redemption of treasury bills, moderated by new disbursements and treasury bond issuances.
“In summary, global economic prospects for 2023 remained resilient despite the slow down from 2022. Nonetheless, risks to the downside may threaten further recovery,” he said.
“The domestic economic activity rebounded in the third quarter of 2023 and is projected to improve in the medium-term, despite the continued weakness in the manufacturing sector. Inflation rose and risks are tilted to the upside due to weak Loti and prospects of adverse weather in the near-term.”
