Ex­change rate, drought fuel in­fla­tion

Lesotho Times - - Busi­ness - Bereng Mpaki

LESOTHO’S year-on-year con­sumer in­fla­tion rate rose from 6.6 per­cent in Fe­bru­ary to 7.5 per­cent in March 2016, with the out­look point­ing to­wards an up­ward tra­jec­tory for the rest of year.

This was re­vealed by Cen­tral Bank of Lesotho (CBL) Gov­er­nor Dr Retšelisit­soe Mat­lanyane on Tues­day fol­low­ing a meet­ing by the apex bank’s Mone­tary Pol­icy Com­mit­tee (MPC).

She said the MPC de­cided to keep the CBL rate at seven per­cent and in­crease the Net In­ter­na­tional Re­serves (NIR) tar­get floor from US$600 mil­lion to US$690 mil­lion to en­sure an ex­change of one loti for one rand and main­tain macroe­co­nomic sta­bil­ity.

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

Dr Mat­lanyane said Lesotho’s eco­nomic growth was set to pick up in 2016 af­ter dip­ping in 2015.

“The re­vised pro­jec­tions in­di­cate that do­mes­tic out­put growth slowed down in 2015,” she said.

“Real GDP (gross do­mes­tic prod­uct) is pro­jected to have in­creased by 2.9 per­cent in 2015 com­pared with 3.6 per­cent in 2014. In terms of the out­look, eco­nomic growth is ex­pected to in­crease by 3.1 per­cent in 2016 at­trib­ut­able to good per­for­mance in the min­ing and query­ing sub-sec­tor and ser­vices sec­tor.”

How­ever, the CBL chief noted that in­fla­tion was con­tin­u­ing to rise ow­ing to the weaker ex­change rate and the ef­fects of the El Niño-in­duced drought. The cur­rent de­pre­ci­a­tion of the rand, to which Lesotho’s mal­oti cur­rency is pegged, against other ma­jor cur­ren­cies, made im­ports more ex­pen­sive.

On the other hand, the drought has ad­versely af­fected the food se­cu­rity of South Africa, which is the main source of food im­ports for Lesotho.

“Do­mes­tic in­fla­tion­ary pres­sures are con­tin­u­ing to build up, with the year-on-year con­sumer in­fla­tion rate ris­ing from 6.6 per­cent in Fe­bru­ary to 7.5 per­cent in March 2016,” said Dr Mat­lanyane.

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

Other de­vel­op­ments the MPC con­sid­ered were money sup­ply and the cur­rent ac­count.

“The broad mea­sure of money sup­ply con­tracted by 3.0 per­cent dur­ing the quar­ter of 2016 due to a de­cline in de­mand and call de­posits with the com­mer­cial banks,” she said.

“Cur­rent ac­count deficit nar­rowed to 11.4 per­cent of GDP in the first quar­ter of 2016, com­pared with a deficit of 15.7 per­cent in the pre­vi­ous quar­ter. The im­prove­ment was due to lower trade ac­count deficit, im­prove­ment in the in­come ac­count and in­crease in cur­rent trans­fers.”

Dr Mat­lanyane said gross of­fi­cial re­serves rose by seven per­cent in the first quar­ter of 2016, higher than an in­crease of four per­cent in the pre­vi­ous quar­ter.

“In months of im­port cover, re­serves im­proved from 5.5 months in the quar­ter end­ing in De­cem­ber 2015 to 6.1 months in the first quar­ter of 2016,” she said.

How­ever, Dr Mat­lanyane said at the end of March 2016, the gov­ern­ment bud­get deficit widened to 1.6 per­cent from 0.1 per­cent of GDP dur­ing the quar­ter end­ing in De­cem­ber 2015.

CBL Gov­er­nor Dr Retšelisit­soe Mat­lanyane.

Newspapers in English

Newspapers from Lesotho

© PressReader. All rights reserved.