Moroke Sekoboto
THE Central Bank of Lesotho (CBL)’s Monetary Policy Committee (MPC) has maintained the repo rate at 6.5 percent, offering some relief to consumers amid growing global uncertainties.
The decision is aimed at aligning monetary policy with prevailing economic conditions, including ongoing conflict in the Middle East and developments in the broader regional monetary environment.
The repo rate is the interest at which the central bank lends to commercial banks, and it influences borrowing costs for products such as vehicle finance, personal loans and mortgages. A lower rate generally translates into cheaper credit for consumers.
Announcing the outcome of the MPC’s 118th meeting on Friday, Dr Letete said Net International Reserves (NIR) stood at US$1,125 million as of 18 March 2026, representing 30.9 percent above the minimum threshold and equivalent to 4.3 months of import cover.
He said this position allows the committee to maintain a modest negative interest rate differential of between 0 and 50 basis points relative to the South African Reserve Bank (SARB) repo rate of 6.75 percent, in order to sustain the exchange rate peg and support domestic economic activity.
Dr Letete said external conditions, while increasingly uncertain, do not currently require a defensive monetary policy response, noting that inflation remains broadly contained despite emerging risks. He warned, however, that anticipated increases in global energy prices could push up fuel and transport costs and feed into broader inflationary pressures.
“The global economic environment remains highly uncertain, characterised by elevated geopolitical tensions, uneven growth prospects, and evolving financial conditions. Since the previous MPC meeting, the greatest new risk has been the conflict in the Middle East that triggered the closure of the Strait of Hormuz. This caused shipping traffic through the Strait to fall significantly, resulting in a major global supply shock. As a result, international crude oil prices rose by nearly 50 per cent since December 2025,” Dr Letete said.
“These developments mark a shift in the global outlook from a disinflationary trajectory to rising stagflation risks. Amid the heightened global uncertainty, major central banks, such as the US Federal Reserve Bank and the European Central Bank, therefore, adopted cautious stances by holding policy rates unchanged in March 2026.”
Dr Letete said the International Monetary Fund (IMF) projects global growth at 3.3 percent in 2026, but warned that persistent increases in oil prices could drive global inflation higher and suppress output. He added that global markets have experienced heightened stress, including rising bond yields, increased volatility and a broad weakening of emerging market currencies, including the South African rand against the US dollar.
“In the Common Monetary Area (CMA), the South African Reserve Bank (SARB) growth projections for South Africa remained broadly unchanged at around 2 per cent in the near term,” Dr Letete said, adding that risks to this outlook remain tilted to the downside due to the ongoing conflict.
He said the South Africa’s headline and core inflation stood at 3.0 percent in February 2026, supported by a relatively strong rand and previously lower energy prices, although rising oil costs are expected to push inflation higher in the near term. As a result, the SARB maintained its repo rate at 6.75 percent in a cautious response to global uncertainty.
On the domestic front, Dr Letete said Lesotho’s external position remains strong, supported by stable fiscal policy which has helped preserve reserve buffers under the fixed exchange rate regime. He said reserves are expected to remain above target through September 2026, although risks such as rand depreciation and potential United States tariff measures on textile exports persist.
Dr Letete said domestic headline inflation eased to 2.7 percent in February 2026 from 3.4 percent in January, reflecting declines in food and transport prices. Food prices benefited from improved cereal harvests, while transport costs fell in line with lower oil prices prior to the recent conflict.
However, he noted that the medium-term inflation outlook has been revised upward due to risks associated with the oil price shock, possible El Niño conditions in 2027 and exchange rate volatility.
He said the Composite Indicator of Economic Activity (CIEA) recorded modest growth of 1.5 percent in January 2026, down from 4.3 percent in December 2025, driven by strong domestic demand and improved performance in financial services, although partly offset by contractions in construction and transport. Growth is expected to remain subdued over the medium term.
Dr Letete added that private sector credit grew by 12.8 percent in January 2026 but is projected to slow to 4.6 percent by 2028, largely due to reduced investment demand as construction under the Lesotho Highlands Water Project Phase II winds down. He cautioned that growth prospects remain vulnerable to external spillovers and persistent structural constraints.
“After carefully considering the balance between maintaining external stability while supporting domestic economic activity, the MPC noted external conditions, while increasingly uncertain, do not currently necessitate a defensive policy response, inflation remains broadly contained; however, there are risks of higher-than-expected inflation arising from anticipated increases in global energy prices, which would raise fuel and transport costs and may feed into broader price pressures,” Dr Letete said.