Central bank increases foreign reserves
THE Central Bank of Lesotho (CB (CBL) has increased the net international reser reserves (NIR) from US$690 million to US$710 million to ensure macroeconomic stability stability. This was revealed by Centra Central Bank of Lesotho (CBL) Governor Dr RetšelisitsoeRe Matlanyane on Tuesday followin following a meeting by the apex bank’s Monetary P Policy Committee (MPC). NIRS are assets held by a cen central bank and denominated in fo foreign currency or gold for the purpose of interv intervening in the exchang exchange market to influence or peg the exchange ra rate. In Leso Lesotho, the NIRS are used to ensure the value of on one loti is equal to one rand s since it is pegge pegged to the South African curr currency. D Dr Matl lanyane s said while Lesotho’s economic performance during the first quarter of 2016 was positive, inflationary pressures remained ominously high mainly due to high food prices and the weak exchange rate.
The high food prices were a result of the El Nino-induced drought and the depreciation of the rand against other major currencies. The drought had adversely affected the food security of South Africa, which is the main source of food imports for Lesotho, while the weak exchange rate made imports more expensive.
She said the positive performance of the economy was largely due to the manufacturing, construction and services sectors which were holding firm despite the challenges.
Dr Matlanyane said the year-on-year consumer inflation rate remained at 7.5 percent in March to June 2016.
“Domestic economic performance during the first quarter was positive driven by very few sectors. Inflationary pressures remained high, mainly due to high food prices and the weak exchange rate. As the economy remains exposed to external shocks, the committee will continue to monitor the global and domestic economic developments.”
She also said the CBL rate would remain at seven percent. 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 oth- ers, determines the cost of borrowing from commercial banks.
Turning to global economic developments, Dr Matlanyane said Britain’s withdrawal from the European Union after a referendum held on 23 June 2016 had subdued the world market.
Dubbed Brexit, which is an abbreviation of “British exit” the withdrawal roiled global markets, including currencies, causing the British pound to fall to its lowest level in decades.
“Economic growth in most advanced economies such as the Euro Area Japan, United Kingdom (UK) and United States remained weak,” she said.
“Recently, global economic outlook has been influenced by the outcome of the UK’S referendum to leave the European Union. The medium-term impact is expected to be negative for global growth, particularly for the UK and Europe, as investment decisions are put on hold during the transition period.”
For emerging markets economies, the central bank chief said there were mixed signals.
“For example, China is expected to register a growth rate of 6.7 percent. The South African economic outlook remains weak following a 1.2 percent contraction in real gross domestic product in the first quarter of this year,” she said.
CBL Governor Dr Retšelisitsoe Matlanyane.