THE Monetary Policy Committee, (MPC), of the Central Bank of Lesotho has resolved to maintain the Repo Rate of 7.75 percent annually, despite the fact that inflation is still extremely high.
July 27, 2023
3 min read
CBL repo rate remains unchanged
CBL Governor, Dr Maluke Letete
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This was said by the bank's Governor, Dr. Maluke Letete, when addressing the media on Tuesday following the sitting of the MPC that was held earlier that day.
The repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. The repo rate is used by monetary authorities to control inflation.
In the event of inflation, central banks increase the repo rate, as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps arrest inflation.
The central bank takes the opposite position in the event of a fall in inflationary pressures. Repo and reverse repo rates form part of the liquidity adjustment facility.
However, Dr. Letete said this 102nd meeting of the committee decided to increase the Net International Reserves (NIR) - measure of a country’s external vulnerability target floor from US$690 million to US$820 million for it to be sufficient to maintain a one-to-one exchange rate peg between the loti and the rand.
He further highlighted that the decisions came as a result of deliberations on global, regional, and domestic economic developments, as well as the latest trends in financial markets.
“This is where the Committee noted that global economic prospects remained relatively unchanged since its last meeting. The global economy is expected to remain weak in 2023 amid heightened geo-economic fragmentation, tighter monetary policy stances, high debt levels, and the recent financial sector challenges,” he said.
The MPC also noted that the on-going Russia-Ukraine war continues to cast a dark cloud over prospects of a global economic recovery, where global economic growth is projected to be 2.8 percent in 2023.
Speaking about the local economy, Letete said domestic economic activity rebounded in May 2023 from a decline recorded in the preceding month.
The stronger growth was mainly underpinned by robust demand and the improved performance of the transport and construction subsectors.
In the first quarter of 2023, Letete said economic activity in selected advanced and emerging market economies exhibited uneven outcomes.
“The US, China, India, and Japan saw improvements in economic activity, mainly driven by increased consumption and investment spending. However, the euro area, UK, and South Africa experienced a slowdown,” he said, adding that growth in the euro area was weighed down by the energy challenges stemming from the shift away from Russia's gas supply, while the UK's growth was affected by the protracted series of labour strikes.
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He said that in South Africa, growth slowed down because of declines in output in the mining, manufacturing, and utilities sectors.
“The South African economy was adversely affected by the power supply crisis and weak commodity export prices,” he said, emphasising that the SA labour market continued to be adversely affected by the prolonged energy crisis, which led to the loss of jobs in mining, trade, and manufacturing sectors.
Similarly, the South African Reserve Bank has also decided to keep the repo rate unchanged at 8.25 percent. This means that the prime lending rate will remain at 11.75 percent.
The move was expected by some economists after data from StatsSA showed that inflation dramatically eased to 5.4 percent in June from 6-point-3 percent in May.
Currently, the inflation rate is below the CBL’s target ceiling of six percent for the first time in 14 months. The bank has been relentless in hiking rates since November 2021 to contain price rises.