Banks set to hike interest rates on loans

MASERU – BANKS are set to hike interest rates on loans after the Central Bank of Lesotho increased its repo rate by 75 basis points from 6.25 percent to seven percent a year on Tuesday.

The repo rate is the rate at which the Central Bank lends money to commercial banks in the event of any shortfall.

The Central Bank’s Director in the Department of Research, Dr Tanka Tlelima, said the decision by the Monetary Policy Committee has had an impact on both sides.

He said due to the high inflation rate, if the interest rate did not increase, businesses would suffer more.

“Even if the businesses can have more access to credit, due to increased prices, no one would come to buy,” Dr Tlelima said.

He said it is a fact that for people who took fixed loans in the banks, the cost of borrowing increases. This further impacts the investment negatively.

However, he said for people who have investments and savings in banks the increasing interest rate benefits them.

“Our mandate is to ensure that inflation is under control which will stabilise the economic conditions,” he said.

The Managing Director of Lesotho Post Bank, Molefi Leqhaoe, said the increase of interest rates has positive and negative impact on different groups of people.

Leqhaoe said customers who are already paying for their loans might end up failing to pay them due to increased cost of borrowing.

However, people who have savings and investment in the banks will benefit as their money increases.

Leqhaoe said this is going to impact businesses especially those that are already paying their recurrent loans with the banks and those which are attempting to get loans.

“Most of the businesses were knocked out by Covid-19, while they are trying to recover, then the increasing interest rate, yet revenue is stable,” he said.

“This might lead to more businesses collapsing,” Leqhaoe said.

He said this also affects banks as they experience the increasing number of businesses and individuals failing to pay their loans.

“We are already experiencing an increasing number of loans defaulting this year,” he said.

He said banks generate money through credits. If the number of people and businesses taking credit declines, this reduces their revenue.

He said if this persists, banks may find themselves being forced to retrench workers.

Leqhaoe urged people to save the little they have and minimize the spending as much as possible.

The Central Bank Governor, Dr Maluke Letete, said the inflationary pressure continued to increase in most economies.

Dr Letete said this has pushed the prices to reach high record levels.

He said the high cost of imported goods, resulting from the currency losing value, also continued to exert pressure on consumer prices.

In a bid to curb the high inflation rates, he said most central banks had continued to increase interest rates.

“South Africa, in particular, raised its policy rate by 75 basis points to seven percent in November 2022,” Dr Letete said.

Refiloe Mpobole