Central Bank of Lesotho
STATEMENT OF THE MONETARY POLICY
COMMITTEE
23rd July 2024
1. The Monetary Policy Committee of the Central Bank of Lesotho held its 108th meeting on the 23rd of July 2024. The Committee deliberated on the latest global, regional, and domestic economic developments, as well as the developments in the financial markets.
2. The Committee noted that the July 2024 IMF’s growth projections for the global economy were relatively unchanged from the April 2024 projections. The global economy is forecast to grow by 3.2 per cent in 2024, with a slight upward revision to 3.3 per cent in 2025. This is expected to be largely underpinned by strong growth from emerging markets and developing economies such as India and China. Risks to global growth include elevated inflation, renewed trade tensions and escalating geopolitical conflicts.
3. Economic activity was generally divergent for most selected advanced and emerging market economies in the first quarter of 2024. For the advanced economies, economic activity improved mainly underpinned by strong domestic demand except for Japan and the United States. Growth in emerging markets and developing economies remained robust due to stronger performance in industrial production except for South Africa, which was weighed down by weak demand, both externally and domestically.
4. Labour markets conditions were mixed in selected economies. The unemployment rate rose slightly in the US, while it remained unchanged in the UK, Japan, China and the euro area during May 2024.
5. Inflation rates declined in most selected economies in June 2024, owing to the fall in energy costs. Most central banks left monetary policy rates unchanged, except the European Central Bank and the People's Bank of China, who cut their policy rates in June and July 2024, respectively.
6. Both long-term and short-term bond yields declined, driven by falling inflation rates and stable policy rates in the selected economies. In South Africa, yields declined mainly driven by improved risk sentiment and increased demand for its securities.
7. Domestic economic activity grew for the second consecutive month in May 2024, registering 1.0 per cent following 0.9 per cent growth in April 2024. This was primarily driven by a stronger performance in the construction and financial services sectors. However, domestic demand and manufacturing sector activity moderated the expansion. In the near term, growth is expected to be stronger mainly due to LHWP construction activity and its spillover effects on services industries.
8. Domestic headline inflation rose to 6.5 per cent in June 2024 from 6.3 per cent in May 2024. The major contributor to this was food and non-alcoholic beverages. Nonetheless, the weaker exchange rate remains a challenge to elevated domestic headline inflation.
9. Money supply (M2) remained unchanged in May 2024 from the preceding month, reflecting the fall in transferable deposits held by other financial corporations, which was met with a commensurate increase in household savings and deposits. Despite this, private sector credit grew, supported by ongoing construction activities around the country.
10. Government operations registered a deficit of 1.7 per cent of GDP in May 2024. The deficit was because of relatively higher government spending. During the same period, the stock of public debt as a percentage of GDP declined to 52.4 per cent from a revised 53.0 per cent in the preceding month.
11. The CBL’s Net International Reserves (NIR) increased by approximately US$119.29 million between May 2024 and 18th of July 2024. This was mainly due to SACU receipts and increased water royalties during the same period. The NIR is expected to improve in the next three quarters to March 2025, with cyclical peaks and troughs.
12. In summary, global growth is expected to remain resilient in 2024 amid risks to the outlook. The domestic economy grew modestly but is expected to expand in the medium term.
13. Having considered the NIR developments and outlook, regional inflation and interest rates outlook, domestic economic conditions and the global economic outlook, the MPC decided to:
i. Maintain the NIR target floor at US$760 million. At this level, the NIR target will be sufficient to maintain a one-to-one exchange rate peg between the Loti and the Rand.
ii. Maintain the CBL rate at 7.75 per cent per annum.
14. The Committee will continue to closely monitor global economic developments and their impact on the domestic economy, especially the Net International Reserves (NIR) and respond accordingly.
E M Letete (Ph.D.)
GOVERNOR
The Monetary Policy Committee of the Central Bank of Lesotho