MASERU- - The Central Bank of Lesotho (CBL) Monetary Policy Committee has decided to keep its repo rate unchanged at 7.00 percent and reduced its Net International Reserves (NIR) target floor from US$680million to US$635.
The committee made adjustments after considering global and domestic conditions, and financial markets as well as the NIR developments and outlook.
The repo rate is the rate at which the Central Bank lends money to commercial banks for onward lending. In most cases the repo rate is used to control inflation. NIRs are the country’s total ‘external assets’ that include foreign currency reserves, deposits and bonds for all the country’s deposits on a global scale.
Acting Governor Dr. Masilo Makhetha indicated that the global economic outlook remained driven, to a large extent, by uncertainty regarding the policies of the new US administration and prospects for the UK’s exist from the European Union.
“The monetary policy stance around the globe remained accommodative with a view to supporting growth except the US which tightened monetary policy in December,” he said.
Makhetha also indicated that domestic activity is expected to recover over the medium term with real GDP expected to accelerate to 4.1 percent in 2018.
“The recovery is expected to be supported by moderate growth in the services sector and a strong rebound in primary sector, particularly in the mining sub-sector,” he said.
He also noted that consumer inflation rate decelerate from 6.0 percent in September to 5.3 percent in December due to the moderation in food prices and non-alcoholic beverages both in the region and domestically.
Makhetha also stated that the broad measure of money supply contracted by 4.2 percent in December from 5.2 percent in September, attributable to a decrease in both CBL’s and commercial banks’ Net Foreign Assets (NFA).
“This was partly due to commercial banks’ inflows from abroad at the back of December holidays,” he added.
He noted that the current account deficit widened to 7.7 percent of GDP in the third quarter of 2016, compared with a revised deficit of 7.4 percent in the previous quarter due to movements in both primary and secondary income accounts.
He also said that the gross official reserves declined by 1.9 percent in the fourth quarter compared to 5.6 percent in the previous quarter.
“At the end of December 2016 government budget balance is estimated to have deteriorated to a deficit of 7.0 percent of GDP from that of 6.3 percent in September due to poor performance of government revenue during the period,” he said.
“The inflationary pressures are subsiding due to easing of food prices and the strengthening Loti, however the economy remains highly exposed to internal and external shocks hence the committee will continue to monitor the global and domestic developments closely,” he said.