By Thoboloko Nts’onyane

MASERU – In its 100th meeting the Central Bank of Lesotho (CBL) Monetary Policy Committee (MPC) resolved to increase the rate by 25 basis points.

This was announced last week by CBL Governor Dr Maluke Letete, who also doubles as the MPC Chairperson. The committee has increased the CBL rate from 7.25 percent per annum to 7.50 percent per annum. 

These developments come amid the ever increasing cost of living. It also says consumers will have to fork deeper from their pockets as the commercial banks will also have to increase the borrowing rate. 

“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 (Lesotho Highlands Water Project) 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 percent observed in January 2023,” said the MPC Chairperson.

Dr Letete further mentioned that the committee has decided to maintain the Net International Reserve (NIR) target floor at USD 640 million approximately M11.9 billion. He said at this level, the NIR target will be sufficient to maintain a one-to-one exchange rate peg between Loti and the South African Rand.

The MPC said the money supply had witnessed an increase of 1.7 percent in February 2023. An increase that translated into a significant increase in commercial banks foreign assets.

The commercial banks’ assets are reported to have been boosted by construction activities relating to LHWP Phase II, which received substantial inflows hence the boost to commercial banks deposits.

Also, the MPC Chairperson reported that the private sector credit rose due to credit extended to businesses while credit extended to households remained unchanged.

He continued that, “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 percent of GDP in February 2023 compared to a deficit of 1.2 percent of GDP (Gross Domestic Product) 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 percent of GDP in February 2023, compared to 52.3 percent of GDP recorded in January 2023.”

The Bank showed that the level of CBL’s Net International Reserves (NIR) deteriorated between January and March 2023.

It was during the period in which the commercial banks’ net outflows were under review.

Meanwhile, the NIR remained above the target floor of USD 640 million set by the MPC in its meeting in January 2023; which was enough to support the Loti-Rand exchange rate peg.

Dr Letete promised that the NIR is expected to improve in the second quarter of 2023 due to the anticipated recovery in SACU revenue.

“… global economic prospects for 2023 have generally improved. Growth is expected to be boosted by pent-up demand and a faster fall in inflation in most economies. Inflation is expected to continue decelerating due to amongst others improved supply of grains and other food stuffs from Ukraine following the renewal of the Black Sea Grain Initiative. The domestic economy is projected to improve in the medium- term on account of construction activities associated with the LHWP Phase II project,” he said.

“The Committee will continue to closely assess the global economic developments and their impact on the domestic economy especially the Net International Reserves (NIR) and respond accordingly.”