The Central Bank of Lesotho (CBL) Governor Dr Maluke Letete has expressed worry at the rate of employee consumption by the private sector compared to the civil service as he remarked that there had been a slight increase in government employment in the first quarter of 2022.
He therefore, noted that there was a need for the private sector to come to the party in order to make a positive change to the status quo.
Letete said this earlier this week following the 96th Monetary Policy Committee meeting (MPC) of the CBL on July 26, 2022.
The meeting considered global, regional, domestic economic and financial markets developments.
Letete said they also found that in relation to the domestic labour market conditions, there was a slight increase in government employment in March 2022, whereas the number of manufacturing and migrant mineworkers declined.
“Though it is good that the government is seen employing more people, the private sector also has to employ more people. This may be the aftermath of Covid-19 but the private sector also has to employ more,” he said.
The Governor pointed out that interest rates will be seen increasing by 0.75% across banks in Lesotho to ensure that the domestic cost is aligned with the regional money market rates.
Letete said having considered the Net International Reserve (NIR) developments and outlook, regional inflation and interest rate outlook, domestic economic conditions and the global economic outlook, the MPC decided to increase the CBL Rate by 75 basis points from 4.75 % per annum to 5.50 % per annum.
He said the rate, set at this level, will ensure that the domestic cost of funds is aligned with the regional money market rates.
Letete said growth in some economies was attributed to strong consumer and government spending in spite of rising inflation coupled with declining effects of the Covid-19 pandemic on economic activity, “…some economies experienced contraction in economic activity on account of lower consumer spending amid heightened inflationary pressures and lower government spending following winding down of fiscal stimulus”.
He said the unemployment rate in most countries improved in the quarter ending in March 2022 following further lifting of Covid-19 related restrictions; labour market related policy support as well as a rise in nominal wages in some economies.
“Except for Japan and China, most central banks, including the South African Reserve Bank, continued to hike key policy rates to contain rising inflation. In particular, the South African Reserve Bank increased its policy rate by 75 basis points to 5.50 percent in July 2022.”
He said the monetary policy normalization in most countries thus resulted in a rise in global short-term yields in both advanced and emerging market economies. Similarly, long-term yields in advanced and emerging economies except China increased saying as a result, in South Africa, foreign investors were net sellers of South African bonds and equity.
Letete said they have also decided to revise downwards the current NIR target floor of US$810 million to US$720 million.
“At this level, the NIR target will continue to support broader macroeconomic stability and maintain the peg between the Loti and the South African Rand,” he said.
He said the MPC realised that the global economic performance was generally mixed in the first quarter of 2022 saying some countries registered growth in Gross Domestic Product (GDP), while others recorded a decline.
Letete further noted that the domestic economic activity is estimated to have grown by 2.1 per cent in May 2022 compared to a growth rate of 1.4 per cent recorded in April 2022.
“Economic growth is always encouraging and whenever we see growth we are happy because that is what is good for the country,” Letete said.
Letete said the main challenge is the inflation which continued to rise in June 2022. He said in particular, inflation accelerated from 7.8 per cent in May to 8.8 per cent in June 2022.
“The 1.0 percentage point increase in inflation was on account of both food and non-food components. The annual inflation rate is expected to remain elevated and record 7.1 percent in 2022, on account of the ongoing war between Russia and Ukraine.”