CBL rate cut to 6.75 percent

CBL rate cut to 6.75 percent

MASERU – THE Central Bank of Lesotho (CBL)’s Monetary Policy Committee has increased the Net International Reserve target floor from US$630 million (about M8.1 billion) to US$635 million (about M8.2 billion).
International reserves are any kind of reserve funds that can be passed between the central banks of different countries, according to the Investopedia.
International reserves are an acceptable form of payment between these banks.

The reserves themselves can either be gold or else a specific currency, such as the dollar or euro.
Investopedia says international reserves are also used by countries to back liabilities such as any local currency that has been issued as well as bank deposits.

Special drawing rights are another form of international reserves.  It was created by the International Monetary Fund to supplement the existing reserves of member countries. Speaking at the Monetary Policy Committee on Tuesday, the CBL Governor Dr Retšelisitsoe Matlanyane said the committee has also reduced “the CBL rate by 25 basis points to 6.75 percent per annum”.
Matlanyane said the committee considered international, regional and domestic economic and financial conditions as well as the Net International Reserve (NIR) developments and outlook.

“Global economic activities continued to show signs of recovery during July 2017, the positive performance in advanced economies emanated mainly from Japan and the United Kingdom, while economic activities from Euro Area and United States (US) remained subdued,” Matlanyane said.
Matlanyane also stated that economic growth rates are still generally lower than those in the pre-financial crisis period averaging around 2 percent for advanced economies and emerging markets average 4.5 percent.

“The recent strong performance of the Chinese economy at 6.6 percent contributed to the favourable environment for emerging markets, while closer to home South African economic growth prospects have deteriorated,” she added.
She said South African economy registered two successive quarters of negative growth of 0.3 percent and 0.7 percent in December 2016 and March 2017 respectively.

Outlook has deteriorated with growth projections having been revised downwards from 1.0 per cent to 0.5 per cent, and from 1.5 per cent to 1.2 for 2017 and 2018, respectively.  “The outlook is affected by heightened political and policy uncertainty, low consumer and investor confidence and the lurking possibility of further credit ratings downgrades,” she said.

Matlanyane said given the deteriorated growth outlook and improved inflation outlook, the SA Reserve Bank reduced the repurchase rate by 25 basis points to 6.75 percent per annum to support growth.

“On the other side, the domestic economic activity contracted during the first quarter of 2017 was that contraction in quarterly economic activity emanated from both the secondary and tertiary sectors, however ,recovery in the primary sector as a result of the relative higher grain harvests plus activities in the diamond mining sector mitigated the contraction to some extent,” Matlanyane said.

She said the year-on-year consumer inflation rate increased to 5.0 percent in June 2017 compared with 4.4 percent that was recorded in March.
“This was largely due to increases in prices of food and non-alcoholic beverages, following an end of government subsidy on locally produced maize meal in May 2017,” she said.

“The overall money supply fell by 0.9 percent in May 2017 in contrast to a 10.9 percent increase registered in March 2017, this decrease was attributable to a fall in the banking system net foreign assets, which more than offset the rise in domestic claims.
She said private sector credit extension has increased by 3.4 percent between April and May 2017, it also increases by 2, 7 percent and 5.4 percent for households and business enterprises, she stated.

Matlanyane also said the external sector position deteriorated during the review period,and as a result, the official reserve coverage fell to 4.9 months of import cover at the end of March 2017 from 5.3 months in December 2016.

“Government budgetary operations were limited to essential and recurrent expenditure during the second quarter, the 2017 and 2018 National Budget proposes a lower fiscal deficit equivalent to 4.8 percent of GDP for the current fiscal year compared to the actual deficit of 7.8 percent realised in 2016 and 2017,” Matlanyane said.

“Having considered these developments, the (MPC) decided to increase the NIR target floor from US$630.00 million to US$635.00 million, and reduce the CBL rate by 25 basis points to 6.75 percent per annum,” she said.

Thooe Ramolibeli

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