Lesotho’s economy is showing signs of modest recovery, but the outlook remains fragile amid global trade policy uncertainty and persistent structural challenges.
This was the key message delivered by the Governor of the Central Bank of Lesotho (CBL), Dr Maluke Letete, during a media briefing following the 114th Monetary Policy Committee (MPC) meeting held in Maseru.
According to Dr Letete, the economic uptick recorded in May was driven by stronger private consumption and steady performance in the manufacturing sector, particularly textile exports to South Africa.
However, he warned that this recovery remains vulnerable to both external and domestic risks.
“Downside risks to the outlook include weakening external demand, increasing trade costs, the winding down of donor-funded programmes such as Compact II, and continued headwinds in the mining sector,” he said.
In a move aimed at bolstering domestic economic activity, the MPC announced a 25-basis-point reduction in the CBL policy rate, from 7.00 to 6.75 per cent per annum.
This rate cut is intended to encourage borrowing, investment, and consumer spending in the face of subdued inflation and a weak growth environment.
Dr Letete noted that the decision to lower the policy rate was made carefully, taking into account the need to maintain monetary stability.
“We remain fully committed to the fixed exchange rate regime, which continues to anchor Lesotho’s monetary and price stability framework,” he stated.
The rate cut aligns with similar monetary easing in the region, notably by the South African Reserve Bank (SARB), and reflects confidence in the current inflation outlook.
Inflation eased to 4.3 per cent in June 2025, aided by declining global oil prices and a stronger loti against the US dollar.
Although inflation is expected to remain contained in the near term, potential risks from imported inflation, especially from South Africa, remain on the radar.
On the fiscal side, Lesotho recorded a budget deficit of 4.4 per cent of GDP in May. Government revenue, excluding receipts from the Southern African Customs Union (SACU), held steady, while spending dropped due to cuts in grants and capital investment. Meanwhile, public debt declined slightly to 54.8 percent of GDP.
Rising SACU receipts and robust textile exports also pushed Lesotho’s Net International Reserves (NIR) up by US$50.95 million, reaching US$1.12 billion by July 22, 2025.
Globally, the economic environment remains uncertain due to geopolitical tensions and volatile trade dynamics. Despite this, the International Monetary Fund (IMF) has revised its global growth projection for 2025 upward to 3.0 percent, citing stronger trade flows and fiscal support.
In the region, South Africa is expected to rebound from weak GDP growth in the first quarter, with improved performance anticipated in the second quarter. Stable inflation in South Africa has also allowed for an accommodative monetary policy.
Alongside the policy rate cut, the CBL raised its NIR target floor from M14.75 billion to M14.93 billion, reaffirming its commitment to safeguarding the fixed exchange rate peg with the South African rand.
The apex bank assured that it would continue to monitor key indicators, including inflation, SACU revenue, fiscal dynamics, and South Africa’s monetary policy stance, and stands ready to act if risks to price or exchange rate stability increase.
Summary
- In a move aimed at bolstering domestic economic activity, the MPC announced a 25-basis-point reduction in the CBL policy rate, from 7.
- The rate cut aligns with similar monetary easing in the region, notably by the South African Reserve Bank (SARB), and reflects confidence in the current inflation outlook.
- In the region, South Africa is expected to rebound from weak GDP growth in the first quarter, with improved performance anticipated in the second quarter.
Seabata Mahao is a general news reporter with special focus on Business and Sports. Started working at Newsday in 2021. Working in a team with a shared goal is what I enjoy most and that gives me the motivation to work under any environment leading to growth.
