Repo Rate Kept At 3, 5 Percent As Inflation Rises 0, 2 Percent

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Kazakh money in a car seat

The Central Bank of Lesotho (CBL) has maintained the repo rate at 3, 50 percent, giving consumers a reprieve in interest costs for loans.

The repo rate is the rate at which the CBL lends to commercial banks. Interest rates charged by commercial banks fluctuate in accordance with changes in the repo rate. If it increases, banks in turn increase the interest rates on mortgages and car loans, among other things. If it decreases, interest rates also decline. If it is kept the same, prevailing interest rates are similarly maintained by the banks.

Inflation for April 2021 was up 0, 2 percent on the back of increases in prices of goods, the CBL said. The general price of goods increased to 6, 7 percent in April 2021, up from 6, 5 in March.

CBL governor Retšelisitsoe Matlanyane attributed the modest rise to increases in the prices of both food and non-food items.

She spoke during a monetary policy committee (MPC) meeting which maintained the repo rate at 3,50 percent this week.

While she did not specify which particular items drove inflation in April, items such as cooking oil and tomatoes are among those whose prices have shot up in recent months.

“The inflation rate, as measured by the year-on-year percentage change in consumer price index (CPI), was 6, 7 percent in April 2021, compared to 6, 5 percent in March 2021,” Dr Matlanyane said.

“The increase emanated from both food and non-food components of the CPI basket.”

On the global economic performance, Dr Matlanyane said there was optimism for growth in 2021.

“The International Monetary Fund (IMF) World Economic Outlook report of April 2021 revised upwards the 2021 global gross domestic product (GDP) forecasts to 6 percent, from the 5, 5 percent forecasted in January 2021. Similarly, growth in the sub- Saharan Africa region is expected to accelerate by 3, 4 percent in 2021, an upward revision of 0, 2 percent from the January 2021 forecast.”

On the domestic front, economic activity increased by 0, 2 percent in the first quarter of 2021, relative to a 2, 2 percent growth in the quarter ending December 2020.

She said domestic labour market conditions remained weak in government employment, textile factories and migrant mineworkers’ sectors in the first quarter of 2021.

“This was primarily on account of Covid-19 lockdown restrictions. The broad measure of money supply declined by 1, 3 percent in the first quarter of 2021, compared to an increase of 9, 9 percent in the previous quarter. The decrease was due to a four percent growth in total banking sector net domestic assets, which was moderated by a 0, 8 percent rise in the sector’s net foreign assets.”

Although some signs of recovery are starting to emerge, global economic growth prospects remain uneven and clouded by the uncertainty surrounding possible resurgence of Covid-19 and the roll-out of vaccines at country level, she said.

The MPC therefore increased the net international reserves (NIR) target floor from US$720 million (about M9, 36 billion) to US$800 million (about M10, 4 billion).

Dr Matlanyane said the new NIR target will be consistent with the maintenance of the exchange rate between the roti and the South African rand.

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