The Central Bank of Lesotho (CBL) increased the prime lending rate in May by 25 basis points from 7.50 percent to 7.75 percent per annum.
This, CBL Governor, Dr Maluke Letete said was decided during the Monetary Policy Committee (MPC) 101st meeting which he said considered global, regional, and domestic economic developments as well as the financial markets developments.
Dr Letete said the economic activity remained weak in the first quarter of 2023, saying the textile and clothing manufacturing subsectors have stagnated as some firms closed and that poor performance was also notable in other industries such as transport and construction.
He said ailing Lesotho’s economy is expected to improve in the medium term on account of the construction activities associated with the Lesotho Highlands Water Project (LHWP) Phase II. He said while inflation has moderated but the risks remain high by the weak Loti.
He noted that inflationary pressures in the domestic economy abated in April 2023 mainly driven by falling food and fuel prices. However, he said the implementation of the alcohol and tobacco levy moderated the disinflation.
“Inflation fell to 6.7 percent in April 2023 from 6.8 percent in the previous month,” he said.
Dr Letete added that despite the declining global food prices, domestic prices of food are persistently higher due to stubbornly high imported inflation at the back of the weaker rand. Moreover, he stated that the government budget balance deteriorated in the last quarter of the 2022 /23 fiscal year relative to a surplus recorded in the preceding quarter, saying the fiscal balance was estimated to have recorded a deficit equivalent to 13.3 percent of GDP compared to a surplus of 3.0 percent of GDP in the previous quarter.
He said the stock of public debt is estimated to have declined to 53.5 percent of GDP in the first quarter of 2023 from 54.4 percent of GDP recorded in the previous quarter.
On the other hand, the First Deputy Governor, Mr. Lehlomela Mohapi said they have increased the basis points by 25 as opposed to South Africa which is 50 basis points because they are mindful that Lesotho’s economy is not at the rate to accept a hike, emphasizing that the country’s economy is stagnant.
He said the 50 basis points would be just too much from where the economy is. Meanwhile, as of May 2023, the prime lending rate in South Africa is 11.75%. It was increased by 0.25% in November 2021, 0.25% in January 2022, 0.75% in September 2022, 0.25% in January 2023, and another 50 points in March 2023.
The Central Bank of Lesotho was established in 1978 as the Lesotho Monetary Authority. It strives to achieve and maintain monetary and financial system stability to support the balanced macroeconomic development of Lesotho.
Source: LENA 30/05/2023
