CBL keeps repo rate steady at 7.5%

Seabata Mahao

The Central Bank of Lesotho (CBL)’s Monetary Policy Committee (MPC) has decided to maintain the repo rate at 7.5 percent per annum, reflecting stable domestic and regional economic conditions.

This announcement was made during a press conference held following the 109th MPC meeting held in Maseru on Tuesday.

In addition to maintaining the repo rate, the MPC lowered the Net International Reserves (NIR) target floor to M12.9 billion, down from M13.08 billion.

This adjustment is aimed at ensuring that sufficient reserves are in place to maintain the one-to-one peg between the Loti and the South African Rand.

The decision follows the MPC’s assessment that both global and domestic economic conditions have remained relatively stable since the last meeting in July.

The current levels of net international reserves are considered adequate to support exchange rate parity, though a moderate adjustment may be needed in the medium term to safeguard ongoing stability.

On the global front, the economy is expected to remain resilient in 2024, despite existing risks. While inflation is projected to ease worldwide, persistent inflation in the services sector poses a potential risk.

Domestically, growth in July 2024 was modest, but it is expected to strengthen in the coming months.

Speaking at a press conference, CBL Governor Dr. Maluke Letete highlighted the Committee’s review of the latest global, regional, and domestic economic and financial market developments.

“The CBL’s NIR decreased by approximately M1.4 billion to M16.4 billion on September 11, 2024, from M17.8 billion on July 16, 2024,” Letete said.

He attributed the decline to increases in foreign investment holdings by commercial banks and the need to meet foreign payment obligations by Lesotho nationals.

Letete added that the external sector recorded a surplus in the second quarter of 2024, supported by higher revenues from the Southern African Customs Union (SACU) and water royalties. The stock of foreign reserves remained stable, covering 5.5 months of imports, thus providing a strong buffer for external stability.

In July 2024, the Government’s budget operations resulted in a surplus of 24.4 percent of Gross Domestic Product (GDP), while public debt as a percentage of GDP slightly increased to 55.2 percent from 54.9 percent in the previous month.

Regarding money supply, Letete reported a decline in July 2024, following a modest increase in June. This was primarily due to decreases in transferable and fixed-time deposits in the business sector. Meanwhile, credit to the private sector grew marginally, benefiting mainly business enterprises.

Domestic headline inflation eased to 6.0 percent in August 2024, down from 6.7 percent in July, driven by lower prices for education, transport, and clothing and footwear.

However, food prices rose due to higher demand and constrained supply.

Letete warned that despite recent currency appreciation, the weak exchange rate continues to pose a risk to the inflation outlook. The inflation rate is forecasted to average 5.5 percent in 2025 and 5.0 percent in 2026.

Lesotho’s economy grew modestly in July 2024 after a contraction in June, supported by increased activity in the construction, transport, and services sectors, despite weak demand and subdued manufacturing.

Looking ahead, key projects, including the Lowlands Water Development Project, the Lesotho Highlands Water Project (LHWP), and Millennium Challenge Corporation (MCC)-supported horticulture initiatives, are expected to drive economic growth.

Inflation rates in selected economies declined in August 2024, mainly due to lower energy costs. Central banks responded by cutting policy rates between July and September 2024, leading to a decrease in both long-term and short-term bond yields.

In China, bond yields fell following the announcement of a stimulus package aimed at boosting the domestic economy.

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