Central Bank of Lesotho cuts repo rate by 25bps to 7.5%

The Central Bank of Lesotho has made a significant move this week by lowering its interest rate by 25 basis points to 7.50 per cent per annum. This decision was made in response to the prevailing domestic economic conditions and the broader regional monetary policy environment. To shed more light on this decision and provide insight into the future of monetary policy, CNBC Africa interviewed Matsela Matsela, Head of Global Markets at Standard Lesotho Bank. When reflecting on the Central Bank of Lesotho's decision, Matsela noted that the market had anticipated this move. With inflation easing down to 4.7 per cent and a consistent decline in South Africa, it was expected that Lesotho would follow suit. Considering that a significant portion of Lesotho's inflation is imported from South Africa, as well as the exchange rate and the rand's appreciation, the rate cut was in line with market expectations. Looking ahead, Matsela expressed caution regarding potential future rate cuts. He highlighted that inflationary pressures are still present, with forecasts indicating a possible increase to around 6.5 per cent. Factors such as food prices and exchange rates continue to impact inflation, making it a delicate balancing act for the Central Bank as they assess the need for further adjustments. The conversation then shifted to the global landscape, with a focus on the potential impact of U.S. policies post the Trump era. Matsela emphasized that African economies, including Lesotho, are intricately linked to global developments, particularly due to heavy reliance on imports. Any inflationary policies introduced by major global players could have significant repercussions on African nations, potentially complicating monetary policy decisions. Despite the challenges posed by external factors, Matsela highlighted positive trends within Lesotho's economic landscape. He pointed to the government's focus on catalyzing a private sector-led economy, particularly in key sectors like agriculture. Additionally, efforts to reduce public debt and maintain healthy import cover reserves position Lesotho favorably for future growth. Looking ahead, Matsela identified the growth in the construction sector as a crucial data point to monitor. Projects like the LHD project are pivotal in creating employment opportunities and driving economic activity. The revitalization of manufacturing industries also plays a key role in absorbing the unemployed and stimulating disposable income within the economy. In conclusion, Matsela underscored the importance of collaborative effort in driving Lesotho's economic growth. With strategic investments, prudent debt management, and a focus on key sectors, Lesotho aims to navigate through inflationary pressures and external uncertainties to achieve sustainable development.