This is according to the Central Bank of Lesotho (CBL) Monetary Policy Committee (MPC) during its quarterly meeting on Tuesday.
The CBL Governor Dr Retšelisitsoe Matlanyane said during the meeting that domestic economic performance in the second quarter of 2020 fell drastically by 12.6 per cent.
Forecasting in to the next quarter, she warned that domestic economy is projected to contract by 6.4 per cent this year due to the economic fallout of the COVID-19 pandemic.
In the same quarter, the rate of inflation, as measured by year-on-year percentage change in consumer price index (CPI) increased from 5.6 per cent in July to 6.0 per cent in August.
“This was mainly due to an increase in the prices of food and non-alcoholic beverages and clothing and footwear. In the medium term, the economy is projected to recover gradually and grow at an average growth rate of 4.6 per cent over the period 2021 to 2022,” Dr Matlanyane said.
In terms of the outlook, the annual inflation rate is projected to register 5.1 per cent this year before increasing to 5.2 and 5.4 per cent in 2021 and 2022 respectively.
Having considered the Net International Reserve (NIR) developments and outlook, regional inflation and interest rate outlook, domestic economic conditions and the global economic outlook, the MPC decided to decrease the NIR target floor from US$550 million to US$540 million.