…as inflation remains high
By Thoboloko Ntšonyane
MASERU – The Central Bank of Lesotho (CBL) has increased the bank’s interest rate to 7.00 percent per annum.
This comes in the face of the reportedly volatile world economy.
These developments the CBL unveiled during its last 98th Monetary Policy Committee (MPC) of 2022 last week.
Presenting the MPC report, CBL Governor who doubles as the Chairperson of the MPC, Dr Maluke Letete said the global economic activity remains weak owing to the COVID-19 pandemic’s sponsored repercussions and the ongoing war between Russia and Ukraine.
He pointed out that the Central Banks have raised the interest rates in order to buttress the rising inflation rates.
“On the domestic front, the indicator of economic activity pointed to a further decline in economic performance. Economic activity is estimated to have contracted by 3.9 percent following a 0.9 percent decline in quarter ending June 2022. Elevated inflationary pressures and supply side bottlenecks continued to weigh down on overall economic activity,” Dr Letete said.
“Having considered the Net International Reserve (NIR) developments and outlook, regional inflation and interest rate outlook, domestic economic conditions and the global economic outlook, the MPC decided to: Revise downward the current NIR target floor of US$730 million (M12,7 billion) to US$650 million (M11,3 billion). At this level, the NIR target will be sufficient to maintain a one-to-one exchange rate peg between Loti and South African Rand.
“Increase the CBL Rate from 6.25 percent per annum to 7.00 percent per annum.”
Meanwhile, the consumers will have to fork deep into their pockets to pay buy commodities and pay for services. In a spate of a week, the Lesotho Energy and Water Authority (LEWA) has approved the electricity tariff increment by 7.8 percent, the price of the bread has also went up by M1 loti and also Lesotho Flour Mills has announced a rise of their products.
Unpacking these developments, local economist Tebello Tjapela said when the prices increase but the income does not increase this tilt the scales against the consumer as it interrupts the purchasing power. He said what people used to buy with a certain amount will now have increased and two scenarios could play out after an increase, which is either the quantity of goods will be smaller or quality of basic needs will be lower.
Tjapela also warned of possible price hikes of goods and services, especially at the factories as the electricity tariffs increases, adding that also the factory owners are faced with the option of either increasing prices to meet their quantity production targets or downsizing staff.
Asked what remedies are there to cushion consumers against the inflation, he said government may subsidized some of the basic commodities such as food. He also said the inflation could be controlled through the fiscal policy or monetary policy. With the fiscal policy, he said it is when the government speeding is curtailed. The other option he said would be to increase taxes, but hastened to add that is not the most viable option owing to the high unemployment rate and the already burdened workforce with high taxes.
On whether we can expect an end sight with the ever-increasing rate of inflation, Tjapela mentioned that it is harder to predict as it is also attributable to an ongoing war between Russia and Ukraine unless they agree to ceasefire. The two are the largest producers of grain and sunflower oil and other agricultural products, the most sought-after commodities.
Meanwhile, the Committee has promised to keep a close eye on the global economic developments as well as their impact on the domestic economy in particular the NIR and “respond accordingly”.
CBL increases interest rate by 7%
…as inflation remains high
Thoboloko Ntšonyane
MASERU – The Central Bank of Lesotho (CBL) has increased the bank’s interest rate to 7.00 percent per annum.
This comes in the face of the reportedly volatile world economy.
These developments the CBL unveiled during its last 98th Monetary Policy Committee (MPC) of 2022 last week.
Presenting the MPC report, CBL Governor who doubles as the Chairperson of the MPC, Dr Maluke Letete said the global economic activity remains weak owing to the COVID-19 pandemic’s sponsored repercussions and the ongoing war between Russia and Ukraine.
He pointed out that the Central Banks have raised the interest rates in order to buttress the rising inflation rates.
“On the domestic front, the indicator of economic activity pointed to a further decline in economic performance. Economic activity is estimated to have contracted by 3.9 percent following a 0.9 percent decline in quarter ending June 2022. Elevated inflationary pressures and supply side bottlenecks continued to weigh down on overall economic activity,” Dr Letete said.
“Having considered the Net International Reserve (NIR) developments and outlook, regional inflation and interest rate outlook, domestic economic conditions and the global economic outlook, the MPC decided to: Revise downward the current NIR target floor of US$730 million (M12,7 billion) to US$650 million (M11,3 billion). At this level, the NIR target will be sufficient to maintain a one-to-one exchange rate peg between Loti and South African Rand.
“Increase the CBL Rate from 6.25 percent per annum to 7.00 percent per annum.”
Meanwhile, the consumers will have to fork deep into their pockets to pay buy commodities and pay for services. In a spate of a week, the Lesotho Energy and Water Authority (LEWA) has approved the electricity tariff increment by 7.8 percent, the price of the bread has also went up by M1 loti and also Lesotho Flour Mills has announced a rise of their products.
Unpacking these developments, local economist Tebello Tjapela said when the prices increase but the income does not increase this tilt the scales against the consumer as it interrupts the purchasing power. He said what people used to buy with a certain amount will now have increased and two scenarios could play out after an increase, which is either the quantity of goods will be smaller or quality of basic needs will be lower.
Tjapela also warned of possible price hikes of goods and services, especially at the factories as the electricity tariffs increases, adding that also the factory owners are faced with the option of either increasing prices to meet their quantity production targets or downsizing staff.
Asked what remedies are there to cushion consumers against the inflation, he said government may subsidized some of the basic commodities such as food. He also said the inflation could be controlled through the fiscal policy or monetary policy. With the fiscal policy, he said it is when the government speeding is curtailed. The other option he said would be to increase taxes, but hastened to add that is not the most viable option owing to the high unemployment rate and the already burdened workforce with high taxes.
On whether we can expect an end sight with the ever-increasing rate of inflation, Tjapela mentioned that it is harder to predict as it is also attributable to an ongoing war between Russia and Ukraine unless they agree to ceasefire. The two are the largest producers of grain and sunflower oil and other agricultural products, the most sought-after commodities.
Meanwhile, the Committee has promised to keep a close eye on the global economic developments as well as their impact on the domestic economy in particular the NIR and “respond accordingly”.