MASERU – The Central Bank of Lesotho (CBL)’s Monetary Policy Committee on Tuesday decided to reduce the Net International Reserves (NIR) target floor from US$755 million to US$750 million to maintain the peg between the Loti and the Rand.
This, however, is not the amount of reserves that the CBL holds but the minimum that they can hold.
The CBL rate was also reduced from 6.75 percent to 6.50 percent per annum.
The peg between the Loti and the Rand is attained by maintaining NIR at a level that is sufficient to guarantee that for every Loti issued there is an equivalent basket of foreign currency reserves.
The reduction in NIR also follows a 1.1 percent decline in money supply as measured by M2 in May 2019 following an increase of 1.9 percent in the previous month.
This, the committee said, was as a result of a decline in net foreign assets that outweighed the growth in domestic claims.
Furthermore, the inflation rate as measured by year-on-year percentage change in consumer price index (CPI) also declined to 5.6 percent in June 2019 compared with 5.9 percent in May 2019.
The major contributors to this deceleration were food and non-alcoholic beverages, housing, electricity, gas, fuel and transport.
The CBL governor Dr Rets’elisitsoe Matlanyane revealed while presenting the statement on Tuesday this week that domestic economic activity slowed down in April this year.
“The CBL measure of economic activity indicated that output had increased at a lower rate of 1.0 percent in April 2019 compared with an increase of 1.3 percent in the preceding month,” Matlanyane said.
She said this was mainly due to weak activity in the manufacturing sector.
Employment by LNDC-assisted firms declined further by 1.0 percent on an annual basis in the first quarter of 2019 following the decline of 2.2 percent in the fourth quarter of 2018.
According to the committee, government operations culminated in a fiscal surplus of 16.9 percent of GDP in April 2019, largely as a result of SACU transfer received during the month, coupled with muted spending that is characteristic of the beginning of the fiscal year.
“Operations are expected to normalise in the subsequent months with spending expected to pick up as budget implementation gets underway,” the CBL governor noted.
In neighbouring South Africa, economic growth continues to decline but is expected to rebound in the second quarter of 2019, boosted by the mining and manufacturing sectors.