The domestic inflation increased to 4.1% in February, up from 3.6 percent in January 2025 driven by price hikes in key sectors such as Food and Non-Alcoholic Beverages, Housing, Electricity, Gas, and Other Fuels, as well as Transportation.
The surge in food prices was largely due to supply-side constraints, particularly the sharp increase in demand for white maize.
Looking ahead, inflation is expected to remain moderate, projected at 5.2 percent for 2025. This reflects modest pressures from non-food inflation, though upside risks persist.
This was disclosed by the First Deputy Governor of the Central Bank of Lesotho, Lehlomela Mohapi, during a recent meeting of the Bank’s Monetary Policy Committee (MPC).
In his address, Mohapi highlighted that domestic economic activity contracted by 4.5% in January 2025, reversing the growth seen in the previous month.
The contraction was broad-based, primarily driven by weak domestic demand and reduced activity in the manufacturing, construction, and transport services industries.
Mohapi noted that while growth projections have remained largely unchanged since the last MPC meeting, rising global uncertainty and domestic vulnerabilities, particularly related to trade and development agreements, pose downside risks to the outlook.
“Growth is projected to moderate to 2.1 percent in 2025. Inflation continued its downward trend in February 2025 across several major economies. In the US and the euro area, this decline was primarily driven by falling energy and services costs. Similarly, in Japan, government subsidies helped ease inflationary pressures as early as January 2025,” he said.
“However, inflation in the UK and South Africa (SA) increased, mainly due to rising energy, utility, and housing costs. In response, most central banks held their policy rates steady, except in the euro area and India, where rates were lowered. Consequently, both short-term and long-term yields declined as central banks maintained rates and inflationary pressures eased,” Mohapi added.
He emphasised that despite heightened global uncertainty, global economic activity is expected to remain resilient. Domestically, economic growth is projected to be modest amid rising uncertainties and vulnerabilities.
In light of these developments, the MPC decided to maintain the Net International Reserves (NIR) target floor at M15, 340, 416, 000 to ensure sufficient reserves to sustain the one-to-one peg between the loti and the rand. The Committee also decided to keep the CBL rate at 7.25 percent per annum to align with prevailing domestic and regional economic conditions.
“The CBL’s NIR fell by approximately US$105.2 million to US$998.9 million as of 13th March 2025, from US$1,104.2 million on 23rd January 2025. This decline was mainly driven by net outflows from commercial banks. In the near to medium term, the NIR position is projected to improve,” Mohapi noted.
“The Monetary Policy Committee (MPC) of the Central Bank of Lesotho (CBL) held its 112th meeting on 25th March 2025. The Committee assessed recent developments in global, regional, and domestic economies, as well as financial market trends, to guide its policy decisions,” he added.
The MPC statement also noted that “Economic activity generally improved in selected economies in the fourth quarter of 2024, mainly due to strong consumer demand despite trade challenges. While most economies are expected to grow in the first quarter of 2025, the United States (US), the United Kingdom (UK), and the euro area are projected to experience slower growth.”
“The anticipated impact of tariffs on the US economy and policy uncertainty in the euro area is likely to dampen growth and exert inflationary pressure. Nonetheless, Japan, China, India, and South Africa (SA) are demonstrating stronger growth prospects, supported by robust consumer demand in Japan, a stimulus package in China, and strong manufacturing sector performance in India and SA. However, these growth prospects are unfolding amid global trade and policy uncertainties,” the statement reads.
The statement further noted that “Although the International Monetary Fund’s (IMF’s) global growth projections have not changed since the January 2025 World Economic Outlook (WEO) update, global uncertainty has heightened due to escalating trade tensions and recurring geopolitical conflicts. The US economy is projected to expand in 2025, while Europe is expected to stagnate. Nonetheless, Germany’s infrastructure investment programme is expected to boost growth in the near term. Key risks to global growth include inflationary pressures, commodity price volatility, and intensifying trade tensions.”
“Labour market conditions varied across major economies in early 2025. In the US, the unemployment rate remained relatively stable, supported by job gains in key sectors. In contrast, the euro area recorded a decline in unemployment, although youth unemployment remained a concern. In Japan and China, unemployment rates rose, primarily due to structural changes, while the UK’s rate held steady despite higher national insurance contributions,” the statement concludes.
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