MASERU – The Central Bank of Lesotho (CBL)’s Monetary Policy Committee (MPC) has revealed on Tuesday that loans and advances extended to business enterprises decreased by 0.9 percent in February, compared to a 0.9 percent growth realized in January. Total credit granted to households also fell by 0.6 percent in February, relative to a decline of 0.5 percent in January.
On the other hand, the broad measure of money supply (M2) increased by 2.3 percent in February, from a decline of 3.3 percent in December last year. The increase was supported by a 24.1 percent growth in total banking sector net domestic assets, which was moderated by a five percent decline in the sector’s net foreign assets.
When delivering the MPC statement, the governor of the Central Bank Dr. Retšelisitsoe Matlanyane revealed further that private sector credit extended by banks fell by 0.7 percent in February, after contracting by 0.2 percent in January.
The committee, having considered all relevant aspects, decided to maintain the CBL rate at 3.50 percent per annum, while further increasing the Net International Reserve (NIR) target floor from US$ 670 million to US$720 million.
The NIR target remains consistent with the maintenance of the exchange rate peg between the loti and the South African Rand.
“Set at this level, the CBL rate will ensure that the domestic cost of funds remains aligned with the rest of the region,” Matlanyane said when announcing the 88th MPC statement.
The CBL’s Monthly Indicator of Economic Activity (MIEA) reflects that economic activity declined by 5.5 percent in January, relative to a 4.6 percent growth in December last year.
“This was mainly as the result of the reintroduction of COVID-19 induced restrictions in the review month,” Matlanyane added.
Domestic economy is projected to contract by a revised 6.1 percent in 2020, due to the economic fallout of the pandemic. The 2020 output contraction is expected to be broad based and led by a prolonged period of low economic activity in the secondary sector.
In the medium term, however, the economy is projected to recover gradually and grow by 4.3 percent in 2021 and at an average rate of 5.2 percent over the period 2022 to 2023.
“The recovery remains largely conditional on developments related to potentially stronger and prolonged rise in virus infections, COVID-19 containment and the rollout of vaccines,” the CBL Governor added.
The rate of inflation as measured by the year on year percentage change in consumer price index (CPI), was 5.6 percent in February, compared to 5.4 percent in January of the same year.
The increase emanated from both food and nonfood components of the CPI basket in terms of the outlook, domestic inflation is set to accelerate to 5.2 percent in 2021 and to an average of 5.5 percent over the period 2022 to 2023.
Risks to the domestic economic outlook include the possible spread of COVID-19 and the effectiveness of the infection control measures, exposure to international economic developments, domestic structural rigidities and policy uncertainty.
The CBL’s Monetary Policy Committee is committed to the conduct of its monetary policy in line with the maintenance of macroeconomic stability in the country.