Central Bank reduces repo rate

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Mimi Machakaire

THE Central Bank of Lesotho’s Monetary Policy committee (MPC) this week cut down the CBL lending rate from 7 percent to 6.75 percent per annum.

Apart from reducing the lending rate, the committee has also increased the net international reserves (NIR) target floor from US$770 million to US$830 million as part of efforts to maintain the country’s macroeconomic stability.

The CBL Governor, Retšelisitsoe Matlanyane, noted that macroeconomic developments in developed and emerging market economies, which are likely to affect the domestic economy, called for urgent fiscal consolidation.

She was speaking at the bank’s 70th MPC meeting held this week.

“NIR low due to underperformance of government revenue and depletion of government deposits,” Dr Matlanyane said.

“This calls for urgent fiscal consolidation.”

She further indicated that the committee would continue to monitor developments that may impact the NIR levels and assure the market that the bank would continue to hold sufficient reserves to underwrite the peg.

She said the economy grew by 2.3 percent in 2017 however the reduction in mining, manufacturing and construction sectors resulted in only moderate economic gains in the fourth quarter of 2017.

Inflation in Lesotho reduced by 0.5 percent from 5.2 percent in February compared to 5.7 percent in December 2017.

“If the appreciation of the South African Rand continues this will be favorable for Lesotho’s inflation outlook. Due to a decline in exports and increase in imports during the previous quarter Lesotho’s current account deficient widened from 3.9 percent in the third quarter – 6.5 percent in the last quarter of 2017. However, because of a higher increase in revenue, the Lesotho government registered a deficit of 6 percent of GDP in their budgetary operations in quarter 4 of 2017,” Dr Matlanyane said.

She said there was a general improvement in the growth of the global economy with more countries experiencing accelerations in the last four months of 2017 compared to the previous quarter.

“However, European countries such as the United Kingdom witnessed growth whilst there was a decline in economic growth in the United States and Japan. The growth in the economy resulted in the creation of more jobs except in the US where monetary policy tightened as the economy approached full employment,” Dr Matlanyane said.

She further stated that as far as the emerging economies of India and China are concerned, the former experienced growth while the latter remained more or less the same. There was a decline in the price of food resulting in an accommodating monetary policy stance.

“Neighboring South Africa was blessed with an improved gross domestic product and an increase in business and consumer confidence. As a result, there was greater agricultural, manufacturing and services production. Due to the gain of the rand against major currencies as well as the decline in food and transport prices there was an ease off of inflation in February 2018,” Dr Matlanyane said.

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