Inflation drops in October
THE Central Bank of Lesotho (CBL) says there has been an improvement in the country’s economic activity in the third quarter of 2016, characterised by among other things the deceleration in the year-on-year consumer inflation rate from 7.5 percent in June to 5.7 percent in October.
CBL’s Monetary Policy Committee (MPC) announced the findings this week after its 62nd meeting where it also resolved to reduce the target floor of the Net international Reserves (NIR) from US$730.00 million to US$680.00 million.
The apex bank indicated that the improvement was influenced by positive performance from the manufacturing and financial services sectors.
“Quarterly domestic economic activity, measured by the CBL’s Economic Activity Indicator (EAI), is estimated to have improved in the third quarter of 2016. The upturn emanated from the secondary and tertiary sectors. Improvements were observed in the manufacturing, financial services as well as the government subsectors,” CBL Governor Dr Retšelisitsoe Matlanyane said during a media briefing this week.
“Year-on-year consumer inflation rate decelerated from 7.5 per cent in June to 5.7 per cent in October,” she said, adding, this was “due to the decline in food prices both in the region and domestically”.
She however, noted that “the broad measure of money supply (M2) contracted by 5.4 per cent in September from 8.3 per cent in June due to a decrease in Net Foreign Assets (NFA)”.
Dr Matlanyane attributed the decline to the recall of funds by commercial banks and the central bank from abroad.
The CBL chief further said a slowdown in flows recorded in both primary and secondary income accounts caused the current account deficit to widen marginally to 12.6 per cent of GDP in the third quarter of 2016, compared with a revised deficit of 12.4 per cent in the previous quarter.
Gross official reserves declined by 8.2 per cent in the third quarter. Measured in months of import cover, official reserves were recorded at 5.3 months in the quarter ending in September compared to 5.5 months recorded in the previous quarter.
Dr Matlanyane said at the end of September 2016, government budget balance is estimated to have improved to a deficit of 4.6 per cent of GDP from that of 13.8 per cent in June largely due to good performance of non-tax revenue.
“In summary, domestic economic performance during the third quarter had improved driven by secondary and tertiary sectors.
“Inflationary pressures are subsiding, mainly due to easing food prices and the appreciating Loti. However, the economy remains highly exposed to internal and external shocks. The Committee will continue to monitor the global and domestic economic developments closely and act accordingly.
“Having considered the above developments, the MPC decided to: 1) Reduce the NIR target floor from US$730.00 million to US$680.00 million, 2) Keep the CBL Rate unchanged at 7.00 per cent,” Dr Matlanyane said.
She also noted that while the global economic activity remained weak, growth in advanced economies such as Japan, the US and the UK accelerated during the quarter.
Dr Matlanyane said in Emerging Markets Economies, economic activity continued to remain resilient as well and the “monetary policy stance around the globe remained accommodation with a view to support growth”.