business

Sept. 30, 2021

NEO SENOKO

3 min read

Economic activity slows down

Economic activity slows down

Story highlights

  • The private sector credit increases
  • Loans, advances to businesses declined by 1.8% in July

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DR Retšelisitsoe Matlanyane, the Governor of the Central Bank of Lesotho (CBL), says local economic activity slowed down by 0.3percent in July compared with the 0.6 percent decline recorded in the preceding months.

This, she revealed on Tuesday as the bank announced the statement of the Monetary Policy Committee (MPC).  

The MPC is committed to conducting monetary policy to achieve and maintain price stability and thus overall macroeconomic stability. 

“Economic activity slowed by 0.3 percent in July. This was mainly as a result of tighter COVID-19 induced restrictions in the review period. The domestic economic recovery remains largely conditional on development measures and the rollout of vaccines. Continued spikes in infection rates could bode negatively for growth and general economic recovery in the short to medium-term,” Dr Matlanyane said during MPC’s 91st meeting.  

In the second quarter of 2021, she said domestic labour market conditions remained weak in all three sectors that are monitored by the bank. This was primarily on account of the COVID-19 lockdown restrictions. 

The rate of inflation, as measured by the year-on-year percentage change in the consumer price index (CPI), was 5.2 percent in August, compared to 5.5 percent in July.  

The largest contributors to the August inflation rate included food, electricity, gas and other fuels as well as transport subcomponents.  

The current account recorded a deficit equivalent to 11.3 percent of GDP in the second quarter of 2021, relevant to a surplus of 1.3 percent of GDP in the preceding quarter. 

“The deterioration in the current account was driven mainly by a decline in the secondary income account surplus, together with the increased deficit on the goods account,” Dr Matlanyane also said.  

Consequently, the gross international reserves, as measured in the months of import cover, fell to 4.2 months in the second quarter of 2021, compared to 4.5 months in the previous quarter. 

The broad measure of money supply (M2) declined by 2.7 percent between June and July. The decrease was due to a contraction of 27.0 percent in Net Foreign Asserts, which was moderated by a 3.4 percent rise in Net Domestic Assets.  

Private sector credit extended by banks increased by 0.5 percent in July compared to a 0.2 percent decline in June.  

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“Loans and advances extended to business enterprises declined by 1.8 percent in July, relative to a 4.5 per cent decline in the preceding month. Similarly, total credit granted to households rose by 1.3 per cent in July, following a rise in both personal loans and mortgages by 1.4 and 1.2 per cent in June respectively,” Dr Matlanyane said.   

As a result, she said the bank decided to decrease the Net International Reserve (NIR) target floor from US$780 million to US$760 million. At this level, the NIR target remains consistent with the maintenance of the exchange rate peg between the loti and the South African rand. 

The bank has further maintained the CBL rate at a rate of 3.50 percent per annum. The rate, set at this level, will ensure that the domestic cost of funds remains aligned with the rest of the region. 

 

 

 

  

  

 

 

 

 

 

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