Lesotho: CBL Lowers Key Interest Rate

4 February 2020

THE Central Bank of Lesotho (CBL) has reduced the CBL rate to 6.25 percent from 6.50 percent in a bid to stimulate the country's lackluster economic performance.

The CBL rate is the interest at which the CBL lends money to commercial banks, who in turn fix own rates to lend to the public.

The monetary policy committee (MPC) of the bank held its 81st meeting this week to determine the appropriate monetary policy action to execute its primary mandate of maintaining price stability.

The bank has also decreased the target floor of the net international reserves (NIR) from US$790 million (about M11.060 billion) to US$630 million (about M8.820 billion).

CBL governor Retšelisitsoe Matlanyane said the country's economic growth remained weak recording almost zero growth by clocking in at 0.1 percent growth in November 2019. She attributed the poor performance to weak economic productivity.

"Domestically, economic growth remained weak," Dr Matlanyane said.

"According to the CBL measure of economic activity, the economy grew by 0.1 per cent in November, the same rate as recorded in October 2019.

"The sluggish economic performance was attributed to the generally weak supply side."

She said employment by Lesotho National Development Corporation (LNDC) assisted firms declined further in the third quarter of 2019, in line with lower demand for some of the large firms' products on the overseas markets.

The inflation rate increased from 4.6 percent in November 2019 to 4.8 percent in December 2019.

"The major contributors to this position include food and nonalcoholic beverages, clothing and footwear, housing, electricity, gas and other fuels."

She said money supply increased by 0.3 percent in the quarter ending December 2019, following an increase of 7.3 percent in the previous quarter. The increase was driven by net foreign assets despite a decline in net domestic claims.

"Private sector credit decreased by 1.9 percent in December 2019, compared to an increase of 7.1 percent in September 2019. The external sector position worsened in the third quarter, on account of a widening current account deficit despite an improvement in the primary and secondary income accounts. Consequently, gross international reserves fell to 4.2 months of import cover from 4.5 months in the second quarter."

Dr Matlanyane said following a broad-based slowdown in the previous quarter, economic growth in the fourth quarter was stimulated in part by accommodative monetary policy and expansionary fiscal policy in the first half of 2019 in some countries, including China and the United States.

There are also signs that factors responsible for weak manufacturing and trade have abated. In contrast, labour markets in advanced economies remained buoyant, with unemployment rates in some cases at historically low levels. However, downside risks to the global economic outlook remain prominent and emanate mainly from trade and geo-political tensions, and other country-specific factors.

"In summary, the global economic activity is expected to stabilise. However, downside risks to global economic outlook continue to be prominent, including geo-political and trade tensions. Domestically, growth has remained subdued.

"Risks to the domestic economic outlook include exposure to international developments and domestic structural rigidities and policy uncertainty," Dr Matlanyane said.

More From: Lesotho Times

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