The domestic economy is expected to continue worsening driven by the weakening global economic growth and increased inflation pressures.
Having already contracted by two percent in November 2022 and 0.8 percent in October 2022, the economy is projected to further get worse in the new year, according to Central Bank of Lesotho (CBL) governor, Dr Maluke Letete.
Dr Letete was addressing journalists last week following the apex bankâ€™s Monetary Policy Committee (MPC) meeting.
He indicated, however, that there would be some improvement in the economy boosted by the construction sector.
â€œThe domestic economy is expected to deteriorate further amid weaker global prospects and elevated inflation pressures,â€ Dr Letete.
He said their economic indicators recorded under-performance at the end of 2022.
â€œBased on the composite indicator of economic activity (CIEA), the domestic economy continues to underperform on account of structural rigidities and policy uncertainty.
â€œThe economic activity was estimated to have contracted by 2.0 percent in November 2022 following a 0.8 percent decline in the preceding month, indicating weakened production and aggregate demand.
In terms of the outlook, the economy is expected to improve driven largely by construction projects.â€
Inflation is expected to remain high for the foreseeable future.
â€œDomestic inflation continued to moderate due to the decline in the non-food component. The n rate declined from 8.1 percent in November to 8.0 percent in December 2022.
Despite the slowdown observed in recent months, inflation is expected to remain high in the medium term due to, amongst others, high food inflation and protracted supply chain disruptions.
Dr Letete further said global growth is expected to further weaken due to the ongoing Russia-Ukraine war and tighter global financial conditions.
â€œInflation pressures in most economies remain elevated despite the slowdown observed in recent months.â€
Meanwhile, the bank has increased the CBL rate from 7.00 percent per annum to 7.25 percent per annum, and revised downwards the net international reserves (NIR) target floor of US$650 million to US$640 million.
â€œHaving considered the NIR developments and outlook, regional inflation and interest rate outlook, domestic economic conditions, and the global economic outlook, the MPC decided to:
- Revise downwards the current NIR target floor of US$650 million to US$640 million. At this level, the NIR target will be sufficient to maintain a one-to-one exchange rate between Loti and South African Rand.
- Increase the CBL Rate from 7.00 percent per annum to 7.25 percent per annum.â€