PRICES of domestic food have been pushed higher by the weaker domestic currency thereby heightening inflationary pressures.
April 5, 2023
3 min read
Food prices surge, as inflationary pressures heightened
CBL Governor, Dr Maluke Letete
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The continuous domestic inflationary pressures come despite the declining global food prices on the other hand.
The Central Bank of Lesotho (CBL)’s Monetary Policy Committee (MPC) revealed on Tuesday that domestically, inflation rose to 7.4 percent in February compared to 6.8 percent observed in January 2023.
Globally, however, inflationary pressures continued to ease in most countries because of declining food prices. The renewal of The Black Sea Grain Initiative is expected to further reduce inflationary pressures given the improved supply of grains and other foodstuffs from Ukraine.
Coming closer to home, the South African Reserve Bank MPC decided to increase the repo rate by 50 basis points in a similar effort to drive down inflation towards the mid-point of its target rate.
The CBL on the other hand decided to increase its repo rate by just 25 basis points from 7.25 percent per annum to 7.50 percent per annum.
The MPC further decided to maintain the Net International Reserves (NIR) target floor at USD 640 million.
“At this level, the NIR target will be sufficient to maintain a one-to-one exchange rate peg between the loti and the South African rand,” the CBL Governor, Dr Maluke Letete told a media briefing on Tuesday.
As a result, credit extended to households remained unchanged, while private sector credit rose because credit extended to businesses.
The level of CBL’s Net International Reserves deteriorated between January and March this year.
This was a result of the commercial bank’s net outflows during the review period. However, the NIR remained above the target floor of USD640 million set by MPC in its meeting in January which was adequate to support the loti-rand exchange rate peg.
The NIR is expected to improve in the second quarter of 2023 due to the anticipated recovery in SACU revenue.
Domestic economic activity, according to the CBL, weakened in January this year. It was estimated to have declined by 2.6 percent due to the weak performance of the transport, construction, and financial sub-sectors.
“In terms of the outlook, the economy is expected to improve largely on account of construction activities of which Lesotho Highlands Water Project (LHWP) Phase II will contribute the largest share,” Letete added.
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The current account balance deteriorated further in the fourth quarter of 2022. The deficit in the current account expanded to 11.9 percent of GDP in the fourth quarter, from a deficit of 0.2 percent of GDP in the third quarter of the same year.
The weak performance of the current account was due to the widening trade account deficit. This was attributable to a sharp fall in exports, particularly diamonds and textiles, and clothing exports while imports registered further growth.
The stock of reserves, measured in months of import cover, fell to 4.0 from 4.8 recorded in the preceding quarter.
Government budgetary operations pointed to a deterioration in February compared to the preceding month.
The fiscal balance was estimated to have recorded a deficit equivalent to 14.8 percent of GDP in February compared to a deficit of 1.2 percent in January.
“This was attributable to a sharp decline in government revenue, which outpaced the fall in expenditure,” the CBL Governor further noted.