By Seleoe Nonyane
The Central Bank of Lesotho (CBL) rate remains unchanged at 7.75 percent per annum.
This decision was made by the CBL Monetary Policy Committee (MPC) on Monday this week after considering the Net International Reserves (NIR) developments and outlook.
The committee also considered the regional inflation and interest rates outlook, domestic economic conditions and global economic outlook.
It decided to revise the NIR target floor of US$820 million to US$710 million.
The MPC decisions were announced at a press briefing by the CBL governor, Maluke Letete, who stated that at this level, the NIR target will be sufficient to maintain a one-to-one exchange rate peg between Loti and the Rand.
He said the committee observed that the economy of Lesotho is stable despite all the challenges it has faced.
However, the economy is not growing as it should and therefore, the question remains on how to boost it further.
“We need to start this conversation across the board to determine how do we drive the economy beyond stability?
“We need these engagements although it is outside our mandate,” the governor said.
Letete indicated that Lesotho needs to be a production-based economy and sell the products at lower prices to beat inflation.
He said the domestic inflation rate fell to 4.5 percent in July 2023 from 5.6 percent in June 2023, adding that this was a result of declining food, fuel and clothing prices.
Despite the decreased inflation rate, increased alcohol and tobacco levies and the weak exchange moderated the fall in the inflation rate.
Letete said the continued weaker rand and the risk of El Nino present upside risks to the medium-term inflation outlook.
He added that domestic economic activity in Lesotho experienced an uptick in July 2023, building on modest growth from the preceding month.
The expansion was driven by growth in the construction and services sectors, particularly from the transport and financial services.
The growth was moderated by the persistent weakness in manufacturing and subdued demand.
“Looking ahead, the Lesotho Highlands Water Project (LHWP) Phase II project and its associated spillover effects are projected to serve as drivers of growth in the medium term,” Letete indicated.
He pointed out that the poor performance of the manufacturing sector, driven by slowing global trade and demand, could negatively affect the economy.
Broad money supply declined moderately in July 2023 compared to the preceding month and this was due to a fall in net domestic assets, as government deposits with CBL increased.
Meanwhile, the private sector credit increased mostly reflecting credit to households while business remain subdued.
Letete further noted the government operations registered a surplus equivalent to 20.6 percent of the Gross Domestic Product (GDP) between June and July 2023 due to Southern African Customs Union (SACU) receipts.
During the same period, the stock of public debt decreased to 55.1 percent of the GDP mainly due to currency fluctuations and the redemption of treasury bills.
He said the committee noted that global economic activity continued to recover gradually from effects of the Covid-19 pandemic and Russia’s invasion Ukraine.
However, some lingering challenges are expected to slow down the global economy and these include high inflation rates, policy tightening by central banks, high debt levels and rising climate risks.
“Therefore, the global economic growth is projected to slow down to 3.0 percent both in 2023 and 2024 from 3.5 percent in 2022,” Letete said.
