ECONOMY GROWS BY 5.5 PERCENT
…as inflation rate drops
MASERU - Improved economic activity and a significant drop in inflation rate were the biggest highlights of the 90th statement of the Monetary Policy Committee (MPC), the Central Bank of Lesotho (CBL) has shown.
Announcing the MPC statement on Tuesday, the Governor of CBL, Dr Retšelisitsoe Matlanyane said the economic activity improved by 5.5 percent in May, in comparison with the 3.3 percent growth recorded in the preceding month.
This was mainly due to the loosening of COVID-19 induced restrictions during the period under review.
Dr Matlanyane said the domestic economic recovery, however, remains largely conditional on developments related to potentially stronger and prolonged rise in virus infections, COVID-19 containment measures and the rollout of vaccines.
Continued spikes in infection rates could also bode negatively for growth and general economic recovery in the short to medium term.
The rate of inflation, as measured by the year on year percentage change in consumer price index (CPI), was 6.0 percent in June, compared to 6.9 percent in May.
“The largest contributors to the June inflation rate included food, electricity, gas and other fuels as well as transport subcomponents,” Dr Matlanyane also said.
She further announced that private sector credit extended by banks increased by 1.8 percent in June, compared to a moderate decline of 0.1 percent in the quarter ending
March. Loans and advances extended to business enterprises increased by a marginal 0.2 percent in the quarter under review, relative to a 1.1 percent growth in the preceding quarter. Similarly, total credit granted to households rose by 2.3 percent in the quarter ending June, relative to a 0.5 percent in the quarter ending March. The current account, on the other hand, recorded a surplus equivalent to 1.1 percent of GDP in the first quarter, from a deficit of 1.8 percent in the preceding quarter.
The improvement in the current account was driven mainly by the performance of the trade and income accounts. Consequently, the gross international reserves, as measured in months of import cover, rose to 4.5 months in the first quarter compared to 4.3 months in the previous quarter.
The government budgetary operations recorded a fiscal deficit equivalent to 9.0 percent of GDP during the first quarter of 2021, as opposed to a revised fiscal surplus of 12.9 percent in the last quarter of 2020.
“Having considered the Net International Reserve (NIR) developments and outlook, regional inflation and interest rate outlook, domestic economic conditions and the global economic outlook, the MPC decided to decrease the NIR target floor from US$800 million to US$780 million. At this level, the NIR target remains consistent with the maintenance of the exchange rate peg between the loti and the South African rand.
“The MPC further decided to maintain the CBL rate at 3.50 percent per annum,” Dr Matlanyane also said.
The rate, set at this level, will ensure that the domestic cost of funds remains aligned with the rest of the region.
“The committee will continue to monitor the global developments and their likely impact on domestic macroeconomic conditions, especially the CBL’s NIR with the aim of taking corrective action when needed,” the governor further