Cen­tral bank in­creases for­eign re­serves

Lesotho Times - - Business - Bereng Mpaki

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.

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