By Matṧeliso Phulane
The Central Bank of Lesotho (CBL) has decided to maintain its Net International Reserves (NIR) target floor at USD 640 million.
This will be sufficient to maintain a one-to-one exchange rate peg between Loti and the South African Rand, the CBL governor, Dr Emmanuel Maluke Letete said in a recent statement.
The Monetary Policy Committee (MPC) of the CBL during its meeting also announced an increase of the bank’s rate by 25 basis points; from 7.25 per cent per annum to 7.50 per cent per annum.
The committee further noted that level of CBL’s NIR had deteriorated between January and March 2023 as a result of commercial banks’ net outflows during the review period.
However, the NIR remained above the target floor of USD640 million set by the MPC in its meeting in January 2023, it said. This was adequate to support the loti-rand exchange rate peg.
The MPC said the NIR is expected to improve in the second quarter of 2023 due to the anticipated recovery in Southern African Customs Union (SACU) revenue.
It added that the domestic economy is projected to improve in the medium-term on account of construction activities associated with the Lesotho Highlands Water Project (LHWP) Phase II project.
The committee also considered global, regional, and domestic economic developments, as well as the financial markets developments.
“We will continue to closely assess the global economic developments and their impact on the domestic economy especially NIR and respond accordingly,” the MPC said.
Domestic economic activity weakened in January 2023. It was estimated to have declined by 2.6 per cent due to the weak performance of the transport, construction and financial sub-sectors.
In terms of the outlook, the economy is expected to improve largely on account of construction activities of which LHWP Phase II will contribute the largest share.
Despite the declining global food prices, domestic food prices have been pushed higher by the weaker domestic currency. As such, domestic inflationary pressures heightened in February 2023 mainly driven by increasing food prices. Inflation rose to 7.4 per cent in February compared to 6.8 per cent observed in January 2023.
Government budgetary operations pointed to a deterioration in February 2023 compared to the preceding month. The fiscal balance was estimated to have recorded a deficit equivalent to 14.8 per cent of GDP in February 2023 compared to a deficit of 1.2 per cent of GDP in January 2023.
This was attributable to a sharp decline in government revenue, which outpaced the fall in expenditure. The stock of public debt was estimated to have increased to 54.2 per cent of GDP in February 2023, compared to 52.3 per cent of GDP recorded in January 2023, according to the MPC statement.
