By Seleoe Nonyane
The Central Bank of Lesotho (CBL) Monetary Policy Committee (MPC) has announced an increase in the repo rate by 25 basis points from 7.50 percent per annum to 7.75 percent per annum.
This comes after the committee held its 101st meeting on Monday this week.
The MPC has revised the Net International Reserves (NIR) target floor to USD690 million, which it says will be sufficient to maintain a one-to-one exchange rate peg between the Loti and the South African Rand.
These decisions were made after the committee considered the NIR developments and outlook, regional inflation and interest rates outlook, domestic economic conditions, and the global economic outlook.
CBL Governor Maluke Letete noted at a media that the global economic prospects for 2023 have remained weak.
He said the domestic economic activity declined in the first quarter although it is projected to improve in the medium term on account of construction activities associated with the Lesotho Highlands Water Project (LHWP) Phase II.
He further indicated that inflation has moderated but the risks remain heightened by the weak Loti.
“The Committee noted that global economic prospects will remain weak in 2023. Global economic growth is projected to register 2.8 per cent from the 2.9 percent predicted earlier in January this year.
“However, global growth is expected to rebound to 3.0 percent in 2024. The weak global growth mainly reflects tighter monetary policy stances across the globe, high debt levels, the continuing war in Ukraine, growing geo-economic fragmentation and recent financial sector problems,” he explained.
Letete revealed that the domestic economic activity remained weak in the first quarter of 2023, citing that the textile and clothing manufacturing sub-sectors have stagnated as some firms closed.
This poor performance was also notable in other industries such as transport and construction.
He, however, revealed that the near-term outlook of the economy projects an improved performance, largely on account of construction activities related to LHWP Phase II.
“Inflationary pressures in the domestic economy abated in April 2023 mainly driven by falling food and fuel prices. However, the implementation of alcohol and tobacco levy moderated the disinflation.
“Inflation fell to 6.7 percent in April 2023, from 6.8 percent in the previous month.
“Despite the declining global food prices, domestic prices of food remained elevated due to stubbornly high imported inflation at the back of the weaker rand,” Letete said.
He further indicated that the money supply increased by 17.4 percent in March 2023 after rising by 1.7 percent in February 2023, attributing the rise to increases in both Net Foreign Assets (NFA) and Net Domestic Assets (NDA).
This was at the back of significant increase in commercial bank’s foreign assets, following the transfers related to the Polihali project and a drawdown in government deposits held at both CBL and commercial banks.
The private sector credit rose due to increases in credit extended to both businesses and households.
The governor explained that the government budget balance deteriorated in the last quarter of 2022/2023 fiscal year relative to a surplus recorded in the preceding quarter.
“The fiscal balance was estimated to have recorded a deficit equivalent to 13.3 percent of the Gross Domestic Product (GDP) compared to a surplus of 3.0 percent of GDP in the previous quarter.
“The stock of public debt is estimated to have declined to 53.5 per cent of GDP in the first quarter of 2023 from 54.4 per cent of GDP recorded in the previous quarter,” he emphasized.
Economic activity in selected advanced and emerging market economies depicted mixed outcomes in the first quarter of 2023. In the US, Japan and China economic activity improved, while the Euro Area, the UK and India experienced slowdowns.
Moreover, Letete said the South African economy is expected to have contracted in the first quarter of 2023 owing to decreased manufacturing utilisation capacity and declining mining output.
The contraction is expected to continue on account of persistent energy crisis, binding infrastructure and logistics bottlenecks as well as declining commodity prices, he cautioned.
Letete added that the MPC will continue to closely assess the global economic developments and their impact on the domestic economy, especially the NIR, and respond accordingly.
