CBL announces 25 points policy rate cuts

RETHABILE MOHONO

MASERU – The Central Bank of Lesotho (CBL) has announced a 25 basis point cut in its policy rate, bringing it down to 6.75 percent per annum, citing easing domestic inflation, improved reserves, and supportive regional monetary policy trends.

The decision was made during the recent meeting of the Monetary Policy Committee (MPC), which assessed global, regional, and domestic economic developments, including inflation dynamics, trade trends, and Lesotho’s exchange rate peg with the South African rand.

CBL Governor, Dr Maluke Letete, noted that the global economic outlook remains mixed, despite an upward revision in growth forecasts by the International Monetary Fund (IMF).

“While uncertainty persists due to trade disruptions and geopolitical risks, the IMF has revised its global growth forecast for 2025 upward to 3.0 percent, reflecting stronger-than-expected trade and fiscal support,” said Dr Letete.

He added that inflation trends remain uneven worldwide.

“Advanced economies face cost pressures from housing, food, and fuel, while inflation is easing in some emerging markets,” he said.

In South Africa, Lesotho’s main trading partner, economic activity is expected to improve in the second quarter following sluggish growth of 0.1 percent in the first quarter of 2025. Inflation has remained within the South African Reserve Bank’s target range, prompting a rate cut that paved the way for Lesotho’s own easing.

Lesotho’s economy has shown signs of modest recovery, according to the CBL, driven by improved private consumption and resilient manufacturing, particularly textile exports to South Africa, in the first half of 2025.

However, the CBL warned that the recovery remains fragile, with downside risks including weakening external demand, higher trade costs, and the withdrawal of donor-funded programmes such as the Millennium Challenge Compact II. Ongoing challenges in the mining sector were also highlighted.

Dr Letete reported that inflation in Lesotho eased to 4.3 percent in June 2025, largely due to lower global oil prices and a stronger Loti against the US Dollar.

“Although inflation is expected to remain contained in the near term, risks remain from imported inflation, particularly from South Africa,” he added.

On the fiscal front, the government recorded a deficit of 4.4 percent of GDP in May. Revenue, excluding SACU receipts, remained stable, while spending declined due to lower grants to extra-budgetary entities and reduced capital expenditure. Public debt declined slightly to 54.8 percent of GDP.

Meanwhile, Lesotho’s Net International Reserves (NIR) increased by US$50.95 million, reaching US$1 120.16 million as of July 22, driven by SACU receipts and higher textile exports.

In light of these developments, the MPC resolved to:

Raise the Net International Reserves (NIR) target floor from US$830 million to US$840 million, a move deemed sufficient to safeguard the loti-rand peg.

Lower the CBL policy rate by 25 basis points to 6.75 percent, aligning with both domestic conditions and the regional policy environment.

Dr Letete reaffirmed the bank’s commitment to preserving the fixed exchange rate regime, stating: “The CBL will maintain adequate foreign exchange reserves to sustain the loti-rand parity and keep domestic inflation broadly aligned with South Africa’s.”

He further emphasized that the bank remains vigilant: “The Central Bank of Lesotho will continue to monitor domestic and external developments, including inflation trends, fiscal dynamics, SACU revenues, and South Africa’s policy direction. The MPC stands ready to adjust the policy stance should risks to the peg or price stability intensify.”