CBL rate remains unchanged

Lemohang Rakotsoane

MASERU

THE Central Bank of Lesotho (CBL) has increased the Net International Reserves (NIR) target floor from US$690 million (about M1.2 billion) to US$710 million (M9.9 billion).

However, the CBL rate will remain unchanged.

The CBL Governor Retšelisitsoe Matlanyane said one of the reasons why the bank increased the NIR target floor “is that we see the SACU receipts continuing to decline as the South African economy” becomes weak.

“In order for us to stay afloat we should start building on our reserves so that even if things get bad we can stay afloat,” Matlanyane says.

She said the South African economic outlook remains weak, like in most advanced economies.

“Economic growth in most advanced economies such as the Euro Area, Japan and the United Kingdom (UK) and United States remain weak,” Matlanyane said.

“Recently global economic outlook has been influenced by the outcome of the UK’s referendum to leave the European Union,” she said.

She added the negative impact is expected to spill over to the rest of the world.

“The medium term real impact is expected to be negative for global growth particularly for the UK and Europe,” she said, adding that “investment decisions are put on hold during the transition period”.

Matlanyane said the quarterly domestic economic activity as measured by the Economic Activity Indicator (EIA) is estimated to have improved in the first half of 2016.

“The good performance largely came from the manufacturing, construction and services sector,” Matlanyane said.

Regardless of the good performance in the first quarter of 2016, consumer inflation rate remained at 7.5 percent in March and June 2016.

“This was due to high food prices caused by the weaker exchange rate,” she said, adding that “effects of drought and inflation is expected to continue on an upward trajectory in 2016”.

Boniswa Nhlapo, Standard Bank’s Corporate Investment Banking manager, said a consumer who is paying mortgage will keep on paying the same price as the CBL rate is maintained.

Nhlapo said although it might be a small relief that the rate has been maintained due to food inflation the value of goods has declined.

“Consumers will not be able to afford a basket of goods that they were able to afford in the past six months. However, for those who are saving or investing they might get better returns especially those investing in things like treasury bills that are driven by their demand and supply. It is always better to save,” Nhlapo says.

She added that it is also good to start building on the reserves upon realising that SACU receipts may continue to decline, as a way of cushioning ourselves for the future.

“The amount of reserves we have does not always relate to trade only, it also relates to whether or not we think in the future we will have enough reserves hence we need to build up our reserves in time,” Nhlapo said.

She said when importing you have to pay out in foreign currency forcing the CBL to have foreign reserves to be able to transact.