By Thoboloko Ntšonyane
MASERU – The Central Bank of Lesotho (CBL) has reduced the policy rate by 25 basis point; a move that aims to lower borrowing costs, potentially stimulating economic activity and providing some relief to businesses and households.
The Bank announced that it has lowered the CBL rate by 25 basis points per annum from 7.75% per annum to now 7.50%.
This was revealed during the publication of the 110th Monetary Policy Committee (MPC) meeting report on Tuesday this week.
During this meeting, the Committee assessed the recent developments in global, regional and domestic economies, as well as those developments in financial markets across the world to guide its policy decisions.
The CBL Governor who is also the Chairperson of the MPC Committee, Dr Maluke Letete said at the domestic level the economy was estimated to have contracted by 1.5% in the third quarter of 2024 following the 1.8% expansion in the preceding quarter.
The MPC Chairperson highlighted that South Africa (SA) saw the decline in inflation rate owing to lower fuel and food prices. The Committee also noted that a stronger exchange rate also added to disinflation in SA.
The domestic inflation continued to ease in October 2024. This mainly reflected declining prices of fuel and food. The recent appreciation of Rand has contributed to the decline in the inflation rate. However, relatively high and elevated food prices are expected to remain a risk to the inflation outlook in the near term.
The broad money supply declined moderately in the third quarter of 2024, underpinned by a fall in transferable deposits held in the business sector. On the other hand, private sector credit increased primarily driven by the banks’ lending to households, while credit to business enterprises declined.
“Government budgetary operations recorded a surplus of 12.7% of GDP in the third quarter of 2024. The surplus stemmed from revenue that, although declining, remained substantially higher than the rising expenditures. Meanwhile, the public debt stock as a percentage of GDP marginally decreased to 54.7% from a revised 55.2% in the previous quarter, attributed to the appreciation of Loti,” he said.
Dr Letete further showed that the growth in the domestic economy is expected to remain steady.
The Committee has indicated that the local economy in the domestic economy is expected to be steady and the economy expected to rise by 2.4% in 2024 and 2.1% in 2025.
The Governor announced that CBL’s net international reserves (NIR) increased by approximately $110 million (M1.9 billion) on November 14, 2024.
The level of reserves has been driven by the construction sector, water royalties from the Southern African Customs Union (SACU) revenue.
The Committee has resolved to increase the NIR to $770 million about M13.9 billion from $750 million M13.6 billion to ensure sufficient reserves to ensure a one to one peg between Loti and Rand.
The CBL’s First Deputy Governor Lehlomela Mohapi said the country’s performance has been commendable on inflation but emphasized the need for a stronger economy.
The stability that Lesotho enjoys, he said, is from external factors.
“What should happen is that, when this phase [of a stable economy] passes, we should have levers in place to maintain the stability,” he said.