Central Bank cuts policy rate to 7.25%
RETHABILE MOHONO
MASERU – The Central Bank of Lesotho (CBL) has lowered its policy rate by 25 basis points, bringing it down to 7.25 percent per annum from the previous 7.50 percent.
CBL chief, Dr Letete Maluke, made the announcement following the 111th meeting of the Monetary Policy Committee (MPC) in Maseru on Tuesday.
This means that the CBL has lowered its key interest rate (also called the policy rate or benchmark rate). This rate influences the interest rates that commercial banks charge for loans and pay on deposits. Thus, a lower policy rate generally makes borrowing cheaper, which can encourage businesses and individuals to take loans, boosting economic activity. However, it can also make saving less attractive because interest on savings may decrease.
The rate cut marks the second consecutive reduction since November 2024, with the bank aiming to create a more favourable lending environment to stimulate economic growth. Dr Letete, who also serves as the MPC chairperson, emphasized that the bank would continue monitoring key economic indicators to ensure monetary policies remain effective in fostering sustainable growth. “Domestic economic activity was estimated to have expanded by 3.1 percent in November 2024, up from 1.5 percent in the previous month. This growth was primarily driven by stronger domestic demand, supported by both consumer spending and robust export growth,” Dr Letete said. He noted that despite challenges in the construction subsector, economic expansion remained broad-based, although growth in the medium term is expected to be uneven due to uncertainties in the export market.
Additionally, Dr Letete reported an increase in the broad money supply during the fourth quarter of 2024, attributed to a rise in transferable deposits held by businesses. Private sector credit also expanded, reflecting increased lending to both households and business enterprises. In its policy decisions, the MPC resolved to raise the net international reserves (NIR) target floor from $770 million (approximately M14.3 billion) to $840 million (about M15.6 billion). This measure is aimed at maintaining the one-to-one peg between the Loti and the South African Rand.
Dr Letete also highlighted a growing fiscal deficit, noting that the government’s budgetary operations suffered a 4.8 percent deficit of the gross domestic product (GDP) in November 2024. This was attributed to a decline in revenue that outpaced reductions in government expenditure. Meanwhile, the country’s public debt as a percentage of GDP rose to 56.2 percent from a revised 55.7 percent in the previous quarter, reflecting disbursements for ongoing foreign-funded projects.
Amid these financial challenges, Dr Letete raised concerns over the temporary 90-day suspension of United States aid to Lesotho, warning of its potential long-term economic implications if it becomes permanent. He cautioned that, while the African Growth and Opportunity Act (AGOA) is classified as a trade agreement rather than aid, any disruptions to AGOA benefits could further strain the economy and exacerbate unemployment rates.
“There are going to be huge implications for the economy,” he said, urging the government to prepare for potential financial hardships. He described the global uncertainty surrounding aid as a “wake-up call,” stressing that reliance on foreign assistance is not a sustainable long-term strategy.
Without US aid, the government may have to shoulder the financial burden of subsidizing essential medication for citizens who previously relied on this support.
