CBL maintains repo rate at 3.50%
Dr Retšelisitsoe Matlanyane, CBL Governor
NEO SENOKO
MASERU – The Central Bank of Lesotho (CBL) has decided to keep the repo rate unchanged, at 3.50 percent. Set at this level, the rate will ensure that the domestic cost of funds remains aligned with the rest of the region.
The repo rate determines the interest rate at which the Central Bank lends money to commercial banks, which then affects the rate at which they lend money to consumers. On Monday, the bank announced that the rate of inflation, as measured by the year on year percentage change in consumer price index (CPI), was 6.7 percent in April, compared to 6.5 percent in March the same year.
The upsurge emanated from both food and non-food components of the CPI basket. “The domestic economic recovery remains largely conditional on developments related to potentially stronger and prolonged rise in virus infections, COVID-19 containment measures and the rollout of vaccines,” the CBL governor, Dr Retšelisitsoe Matlanyane said on Monday when presenting the statement of the Monetary Policy Committee (MPC).
MPC is committed to conducting monetary policy with the sole purpose of maintenance of macroeconomic stability. During its meetings, the committee considers international, regional and domestic economic developments as well as financial market conditions.
The governor further revealed that the broad measure of money supply (M2) declined by 1.3 percent in the first quarter of 2021, from an increase of 9.9 percent in the previous quarter. The decrease, she said, was due to a 4 percent growth in total banking sector net domestic assets, which was moderated by 0.8 percent rise in the sector’s net foreign assts.
“Private sector credit extended and banks fell by 0.1 percent in quarter one, after contracting by 0.5 percent in the fourth quarter of 2020. Loans and advances extended to business enterprises increased by 1.1 percent in quarter one, compared to a 3.1 percent decline realised in the fourth quarter of 2020,” Dr Matlanyane said. Conversely, total credit granted to households fell by 0.5 percent in quarter one, relative to an increase of 0.5 percent in the quarter ending December 2020.
The current account recorded a surplus equivalent to 1.1 percent of GDP in the first quarter of 2021, from a deficit of 1.8 percent of GDP 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 of 2021, compared to 4.3 months in the previous quarter.
The government budgetary operations on the other hand recorded a fiscal deficit equivalent to 9 percent of GDP during the first quarter of 2021, as opposed to a revised fiscal surplus of 12.9 percent of GDP in the last quarter of 2020.
The MPC further decided to increase the NIR target floor from US$720 million to US$800 million. The new NIR target will be consistent with the maintenance of the exchange rate between the loti and the South African rand. Meanwhile, Dr Matlanyane says the global economy has shown some signs of recovery since March 21.
This she said when giving details of CBL’s Monetary Policy Committee (MPC)’s 89th meeting held this week in Maseru. Dr Matlanyane said this has largely been underpinned by steady gains in vaccinations, sizeable fiscal stimulus packages and a general pick up in global demand. She said despite the improvements, global growth prospects in the near-term remain highly uncertain and uneven across countries.
“Growth remains vulnerable to new mutations of the virus, vaccine availability and lack of uniformity in rates of country vaccinations. Further downside risks include global trade tensions, limited policy space and possible tightening of containment measures as infections rise,” she said.
The International Monetary Fund (IMF) World Economic Outlook report of April 2021 revised up the 2021 global gross domestic product (GDP) forecasts to six percent, from the 5.5 percent forecast in January 2021 saying similarly, growth in the sub- Saharan Africa region is expected to accelerate by 3.4 percent in 2021, an upward revision of 0.2 percent from the January 2021 forecast.
It shows that global economic activity improved during the first quarter of 2021, although in a manner that was uneven across countries, United States (US) real GDP increased at the annual rate of 0.4 percent in the first quarter of 2021, following a decline of 2.4 percent in the quarter ending December 2020. “In the Euro Area, real GDP contracted by 1.8 percent in the first quarter, after a decline of 4.9 percent in quarter four of 2020.
Japan’s real GDP fell by 1.3 percent in the first quarter of 2021, following growth of 2.8 percent in the previous quarter. The first quarter real GDP in the United Kingdom (UK) contracted by 6.1 percent annually, a slight improvement from a decline of 7.3 percent in the last quarter of 2020. “In emerging market economies, China realised an annual real GDP growth of 18.3 percent in the first quarter, compared to 6.5 percent in the fourth quarter,” she added.
She noted that the global labour market developments largely improved during the first quarter of 2021 on account of looser lockdown restrictions, vaccination drives and attempts to return to normalcy saying on price developments, inflation rates have generally picked up in the US, UK, Euro Area, China, India and South Africa in the first quarter of 2021 adding that the monetary policy stance across advanced economies remained accommodative, with policy rates in the US, the Euro Area and UK kept close to zero.
She mentioned that global financial markets reflected mixed signs of volatility and easing market risk saying yields in emerging markets, especially South Africa, barely changed and remained subdued on the short and long end. However, stated that investors were net buyers of South African assets, with positive risk sentiment outweighing concerns emanating from negative debt developments adding that the rand is expected to remain range bound, with high downside risks and volatility.
