CBL hikes in­ter­est rate

Lesotho Times - - Front Page - Bereng Mpaki

THE Cen­tral Bank of Le­sotho (CBL) has in­creased its in­ter­est rate to 7.00 per­cent from 6.75 per­cent, in a move meant to achieve macro-eco­nomic sta­bil­ity in the coun­try.

How­ever, this is likely to cause rip­ple ef­fects in the var­i­ous sec­tors of the econ­omy, with some fi­nan­cial ex­perts hint­ing this was go­ing to trig­ger an in­crease in the cost of bor­row­ing money, as com­mer­cial banks will pass-on the costs to the clients.

An­nounc­ing the ad­just­ment on Tues­day this week, fol­low­ing the Banks’s Mon­e­tary Pol­icy Com­mit­tee sit­ting, CBL Gov­er­nor, Retšelisit­soe Mat­lanyane, also re­vealed the Net In­ter­na­tional Re­serves (NIR) tar­get floor has been in­creased from US$745 mil­lion to US$770 mil­lion.

The Mon­e­tary Pol­icy Com­mit­tee reg­u­larly sits to de­ter­mine mon­e­tary tar­gets to en­sure macro-eco­nomic sta­bil­ity in the coun­try.

How­ever, the CBL rate is ap­plied when the cen­tral bank lends money to com­mer­cial banks. There­fore, the in­crease in the CBL rate, among other fac­tors, is ex­pected to raise loan in­ter­est rates as the banks will pass on the cost to con­sumers through ad­just­ing their prime lend­ing rates by at least 25 ba­sis points.

Ac­cord­ing to an eco­nomic ex­pert and for­mer Min­is­ter of Fi­nance, Ti­mothy Tha­hane, the im­pact of this can be seen in the re­duc­tion in the amount of lend­ing done by banks to con­sumers, as this was likely to con­tain in­fla­tion by dis­cour­ag­ing bor­row­ing by con­sumers.

On the other hand, Dr Tha­hane in­di­cated that the up­ward ad­just­ment of the CBL in­ter­est rate could be good omen for con­sumers of gov­ern­ment bonds since the in­ter­est rates at which the bonds are is­sued will of­fer bet­ter re­turns.

The South Africa repo rate, on which the CBL rate is nor­mally aligned, has been left un­changed at 6.75 per­cent.

Mean­while, Dr Mat­lanyane fur­ther in­di­cated that based on the pro­jected fig­ures, eco­nomic growth was ex­pected to re­main mod­est in 2017, sup­ported by the min­ing and ser­vice sec­tors.

“In the medium-term, growth is ex­pected to ac­cel­er­ate, an­chored by min­ing and con­struc­tion,” she said.

Dr Mat­lanyane how­ever noted that the down­side risk to the out­look in­clude the sub­dued growth prospects of South Africa’s econ­omy, and pres­sure on the do­mes­tic fis­cal po­si­tion.

She fur­ther in­di­cated that the year-onyear con­sumer in­fla­tion rate was mea­sured at 5.7 per­cent in De­cem­ber 2017, climbin­gup from 5.6 per­cent in Septem­ber 2017, and 5.3 per­cent in De­cem­ber 2016. The in­crease em­anated mainly from food and trans­port cat­e­gories of the con­sumer price in­dex.

“Money sup­ply in­creased by 3.7 per­cent in De­cem­ber 2017, com­pared to a rise of 8.5 per­cent in Septem­ber 2017. The slow-down in money sup­ply was due to a mod­er­ate in­crease in do­mes­tic claims, cou­pled with a de­cline in net for­eign as­sets.”

Dr Mat­lanyane fur­ther ex­plained that credit to pri­vate sec­tor grew by 3.6 per­cent dur­ing the fourth quar­ter of 2017, com­pared with a lower 0.3 per­cent in­crease recorded in the third quar­ter. This re­flected im­prove­ment in credit ex­tended to both house­hold and busi­ness en­ter­prises.

The cur­rent ac­count deficit nar­rowed to 3.1 per­cent of GDP in the third quar­ter from a 7.9 per­cent of GDP in the sec­ond quar­ter, she ex­plained.

“The im­prove­ment in the cur­rent ac­count was caused by an in­crease in ex­ports dur­ing the quar­ter. How­ever, a slow-down in the pri­mary and sec­ondary in­come off­set the gains from a smaller cur­rent ac­count deficit. Of­fi­cial re­serves de­creased slightly from 4.4 months of im­port cover re­al­ized in June, to 4.3 months in Septem­ber 2017,” she said.

Dr Mat­lanyane said gov­ern­ment bud­getary op­er­a­tions were ex­pected to re­main in deficit due to un­der-per­for­mance by ma­jor com­po­nents of do­mes­tic rev­enue.

CBL Gov­er­nor Retšelisit­soe Mat­lanyane.

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