Maseru- Following South Africa’s controversial cabinet reshuffle last week and the subsequent downgrading of the country’s credit rating to of which saw the rand fall, the Central Bank of Lesotho (CBL) says commodities are likely to become more expensive in the short-term, resulting in a decline of revenues from the Southern African Customs Union (SACU).
The SA cabinet reshuffle also the sacking of former Finance minister Pravin Gordhan and the country’s credit rating being downgraded to “junk status” by the ratings agency, S&P Global. As a result, the rand fell sharply by as much as 2 percent against the US dollar, causing further panic, not only in SA, but in other SACU member-countries such as Lesotho.
Briefing the 64th Monetary Policy Committee (MPC) meeting held on Tuesday, April 4 2017, the CBL governor Dr. Rets’elisitsoe Matlanyane indicated that other possible consequences of the events in South Africa to Lesotho would include inflationary pressures regardless of the expected good harvests. The depreciation in the rand affects Lesotho due to the alignment of the rand and the loti, she said.
Matlanyane further explained that the possibility of the local economy being affected by events in South Africa would be determined by how the economy will continue to react and the investors’ decisions on whether or not to pull their investments out of South Africa.
“While the inflationary pressures have been subsiding in the last quarter of 2016, inflation is forecast to rise going forward as a result of increases in administered prices and SA’s sovereign downgrade,” she said.
Turning to events back home, Matlanyane stated that the committee had decided, after a number of considerations, to keep the CBL rate unchanged at 7 percent and to reduce the Net International Reserve (NIR) target floor from US$635 million to US$600 million.
The governor explained that the decisions were based on the challenging global economic conditions which continued to have a bearing on domestic developments.
“Although monetary policy in advanced and emerging market economies remained generally accommodative to stimulate economic growth during the review period, the quarterly domestic economic activity as measured by the CBL’s Economic Activity Indicator is estimated to have slowed down in the fourth quarter of 2016.”
The governor said the downturn emanated from the secondary and tertiary effects, with contractions observed in the manufacturing, water, trade and other services as well as the government sub-sectors.
“The year-on-year consumer inflation rate registered 5.0 per cent and 5.2 per cent in January and February 2017 respectively and was due to the moderation in prices of food and non-alcoholic beverages both in the region and domestically,” she pointed out.