THE Central Bank of Lesotho (CBL) has increased the Net International Reserves (NIR) target floor from US$635 million to US$670 million.
business
Jan. 29, 2021
NEO SENOKO
2 min read
CBL increases NIR target
CBL Governor Dr Retšelisitsoe Matlanyane
The NIR target remains consistent with the maintenance of the exchange rate peg between the loti and the South African rand.
The CBL revealed this on Tuesday when announcing the 87th statement of the monetary policy committee.
The bank maintains the rate at 3.50 percent per annum. Set at this level, the rate will ensure that the domestic costs of funds remain aligned with the rest of the region.
On the other hand, the domestic economy is projected to contract by a revised 6.6 percent in 2020 due to the economic fallout caused by the COVID-19 pandemic.
“The output contraction is expected to be led by a prolonged period of low economic activity in the services sector as well as in the textile and clothing, construction and mining industries,” the CBL Governor Dr Retšelisitsoe Matlanyane said when delivering the MPC statement.
In the medium term, the economy is projected to recover gradually and grow at an average rate of 5.1 percent over the period 2021-22.
The recovery is conditional on developments related to the COVID-19 containment.
However, it is likely to come largely at the back of a strong rebound in the mining and construction industries as well as a broad based recovery as COVID-19 containment measures are gradually lifted.
In the labour market, the CBL stated that all three sectors that are monitored by the bank experienced a decline in employment numbers in the quarter ending September 2020.
The highest drop emanated from the migrant mine workers, followed by government employment and lastly employment in the manufacturing sector.
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The rate of inflation, measured by year on year percentage change in consumer price index (CPI) registered 5.7 percent in December 2020 relative to 5.6 percent in November.
“This was mainly due to an increase in food and non-alcoholic beverages as well as alcohol and tobacco,” Dr Matlanyane said.
In terms of the outlook, inflation rate is projected to register 5.2 percent and 5.4 percent in 2021 and 2022 respectively.
The current account balance worsened in the third quarter on account of an increased deficit on the goods account as imports rose faster than exports.
Consequently, the gross international reserves as measured in months of import cover declined to 4.1 months from a revised 5.9 months in the previous quarter despite a moderate increase in official reserves.
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