THE Central Bank of Lesotho (CBL) has revised its CBL rate from 6.25 percent to 6.75 percent in response to the depreciation of the rand against major currencies.
Addressing a news conference on Tuesday, CBL Governor Dr Retšelisitsoe Matlanyane said the apex bank’s Monetary Policy Committee (MPC) made the adjustment after considering global economic developments, financial markets, domestic economic conditions and outlook, as well as Net International Reserves (NIR) developments.
On the regional front, she said economic activity remained subdued in 2015.
“In SA, economic activity slowed down due to domestic supply constraints coupled with weak export demand as well as heightened risk in investor confidence,” Dr Matlanyane said.
She said the monetary policy stance tightened in the Common Monetary Area (CMA) region in response to the deteriorating inflation outlook. The CMA links South Africa, Namibia, Lesotho and Swaziland into a monetary union.
Dr Matlanyane said advanced economies and emerging markets economies had opted to leave their key rates unchanged while China cut its policy rate in response to low inflation rates and weak economic activity.
She noted that domestic output growth slowed down in 2015, with gross domestic product (GDP) only increasing by 2.8 percent in 2015 compared to 3.6 percent in 2014.
“The primary sector is projected to have declined by 3.8 percent, while the secondary sector is expected to register a growth rate of 3.9 percent. The service sector is projected to grow at 4.1 percent,” the CBL chief said.
“Domestic inflationary pressures increased, with the year-on-year consumer inflation rate rising from 3.8 percent in September to 5.1 percent in December 2015.
“In terms of the outlook, inflation is expected to continue on an upward trajectory in 2016.”
Dr Matlanyane said the drought conditions affecting the SADC region and the depreciating exchange rate were also expected to exert pressure on food prices.
She also touched on money supply, saying it expanded by 0.1 percent during the fourth quarter.
“This was attributable to a decline in domestic claims and a slow growth in Net Foreign Assets. Money market interest rates remained broadly aligned to their regional counterparts,” said Dr Matlanyane.
“Having considered the above economic developments including those in the external sector and government budgetary operations, the MPC decided that the NIR position continues to remain strongly above the previously set target floor of US$635 million.
“However, due to currency depreciation of the Loti against major currencies in the fourth quarter, the parity between the Loti and the Rand can be adequately underwritten with the NIR floor of US$600.00 million.”