Cen­tral Bank in­creases pol­icy rate

Lesotho Times - - Business - Bereng Mpaki

THE Cen­tral Bank of Le­sotho (CBL) has re­vised its CBL rate from 6.75 per­cent to seven per­cent in re­sponse to re­cent ad­verse global and do­mes­tic eco­nomicmic de­vel­op­ments.

Cen­tral banks s re­vise bench­mark in­ter­est rates reg­u­larly to en­sure price sta­bil­ity and help gov­ern­ments achieve eco­nomic growth tar­gets. The CBL BL rate is the bench­mark in­ter­e­strest rate which, among oth­ers, de­ter­mines the cost of bor­row­ing g from com­mer­cial banks.

Ad­dress­ing a news con­fer­ence on Tues­day fol­low­ing low­ing a meet­ing by the apex bank’s Mon­e­tary Pol­icy Com­mit­tee ( MPC), PC), CBL Gov­er­nor Dr Retšelisit­soe Matat­lanyane said the he new CBL rate e and the Net t I nter­na­tional l Re­serves ( NIR) tar­get floor of US$600 mil­lion would bring about macroe­co­nomic sta­bil­ity by en­sur­ing an ex­change of one loti for one rand.

“Hav­ing con­sid­ered the above eco­nomic de­vel­op­ments and out­look, the com­mit­tee de­cided to main­tain the NIR tar­get floor of US$600 mil­lion and in­crease the CBL Rate by 25 ba­sis points from 6.75 per­cent to 7 per­cent. This would en­sure that the Loti would be ad­e­quately un­der­writ­ten,” she said.

On the global out­look, Dr Mat­lanyane said eco­nomic ac­tiv­ity re­mained sub­dued with the econ­omy of the United States slow­ing down in the fourth quar­ter of 2015. She said while an im­prove­ment was ex­pected in eco­nomic pow­er­house’s econ­omy in the first quar­ter of 2016, it would “re­main below its po­ten­tial”.

“A Am more fa­vor­able eco­nomic out­look is ex­pected in the Euro Area and theth UK dur­ing the same pe­riod,” th the CBL boss noted.

“Con “Con­sid­er­ing some emerg­ing mar­ket eco economies, prospects for China con­tinu con­tin­ued to re­main un­cer­tain.”

She said Le­sotho and the rest of the Co Com­mon Mon­e­tary Area (CMA) were a also weighed down by the slug­gish g growth in the South African econom econ­omy. The CMA links South Africa, N Namibia, Le­sotho and Swazi­land in into a mon­e­tary union.

“The neigh­bor­ing South African econom econ­omy slowed down with an an­nu­alise nu­alised growth rate of 0.06 per­cent dur­ing the fourth quar­ter of 2015,” said D Dr Mat­lanyane.

“Thi “This was due to do­mes­tic sup­ply con­stra con­straints cou­pled with weak ex­port de de­mand as well as height­ened risk in in­vestor con­fi­dence. Mon­e­tary p pol­icy stance tight­ened in the CMA r re­gion in re­sponse to de­te­ri­o­rat­ing in­fla­tion out­look.”

She noted that do­mes­tic out­put growth would con­tinue to slow down with gross do­mes­tic prod­uct (GDP) only in­creas­ing by 2.8 per­cent in 2015 com­pared to 3.6 per­cent in 2014.

Do­mes­tic in­fla­tion­ary pres­sures, Dr Mat­lanyane said, were build­ing up with the year-on-year con­sumer in­fla­tion rate ris­ing from 5.1 per­cent in De­cem­ber 2015 to 5.8 per­cent in Jan­uary 2016.

“This is at­trib­ut­able to in­creas­ing food prices due to (the) weaker ex­change rate and the ef­fects of the drought. In terms of the out­look, in­fla­tion is ex­pected to con­tinue on an up­ward tra­jec­tory in 2016,” she said.

She also touched on money sup­ply, say­ing it ex­panded by 0.1 per­cent dur­ing the fourth quar­ter of 2015.

“This was caused by a de­cline in do­mes­tic claims and a slow growth in Net For­eign As­sets (NFA). Money mar­ket in­ter­est rates re­mained broadly aligned to their re­gional coun­ter­parts,” said the apex bank chief.

“Cur­rent ac­count deficit widened to 13.7 per cent of GDP in the fourth quar­ter of 2015 as a re­sult of a rise in im­ports and a de­cline in ex­ports. How­ever, the deficit was mod­er­ated by the growth in the in­come ac­count due to an in­crease in port­fo­lio in­vest­ments abroad.”

Dr Mat­lanyane said the coun­try’s forex re­serves had in­creased due to the de­pre­ci­a­tion of the Loti against the ma­jor cur­ren­cies.

“Gross of­fi­cial re­serves rose by 5.7 per­cent in the fourth quar­ter of 2015, driven largely by gains from de­pre­ci­a­tion of the lo­cal cur­rency (Loti/rand) against ma­jor cur­ren­cies in which of­fi­cial re­serves are held. In months of im­port cover, re­serves fell slightly from 6.0 months to 5.9 months in the quar­ter end­ing De­cem­ber 2015,” she said.

“For the quar­ter end­ing De­cem­ber 2015, govern­ment bud­get bal­ance im­proved to a deficit of 0.1 per cent of GDP from a deficit po­si­tion of 6.1 per cent of GDP dur­ing the quar­ter end­ing Septem­ber 2015.

“This was a re­sult of rev­enue that had in­creased by 12.7 per­cent while ex­pen­di­ture in­creased by 2.6 per­cent.”

CBL Gov­er­nor Dr Retšelisit­soe Mat­lanyane.

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