Moroke Sekoboto
THE Central Bank of Lesotho (CBL)’s Monetary Policy Committee (MPC) has raised the repo rate by 25 basis points from 6.5 percent to 6.75 percent.
The Committee said the adjustment was necessary to maintain a modest interest rate differential of 25 basis points relative to the South African Reserve Bank (SARB)’s repo rate of 7.0 percent per annum. It said the differential was sufficient to sustain the exchange rate peg while supporting domestic economic activity.
The decision comes amid heightened global uncertainty caused by multiple shocks, with the escalating Middle East conflict between the United States and Iran taking centre stage.
The repo rate is the interest rate at which the central bank lends money to commercial banks, thereby influencing borrowing costs on vehicles, mortgages, personal loans and other financial products. A lower repo rate generally translates into lower borrowing costs for consumers.
CBL Governor, Dr Maluke Letete, announced the decision following the MPC’s 119th meeting on Friday.
Dr Letete said Lesotho’s external position had remained strong since the last MPC meeting. He revealed that Net International Reserves (NIR) stood at US$1,227 million on 19 May 2026, representing a buffer of US$217 million above the target floor of US$1,010 million.
He said this showed that the exchange rate peg remained well-capitalised against potential currency pressures, while the near-term NIR outlook also remained broadly positive.
“The war triggered a near-complete closure of the Strait of Hormuz and caused a dramatic spike in crude oil prices. Shipping traffic through the Strait fell to near zero, delivering a significant supply-side shock to global energy markets. In the meantime, gold prices increased, reflecting elevated safe-haven demand amid deteriorating global risk sentiment and rising geopolitical uncertainty,” Dr Letete said.
He said the International Monetary Fund (IMF)’s April 2026 World Economic Outlook had revised global growth downward to 3.1 percent in 2026 and 3.2 percent in 2027 from an earlier projection of 3.3 percent.
“The current uncertainty has resulted in global headline inflation being projected to rise to 4.4 percent in 2026 before receding in 2027. Major risks to the global economy are expected to emanate from a looming food supply crisis as fertiliser shortages increase, as well as the potential occurrence of a Super El Niño and the continuing Middle East conflict.”
He highlighted that the impact of the recent shocks was expected to be highly uneven across countries, with commodity-importing low-income countries and emerging market economies likely to be hardest hit through rising energy and food prices.
Consequently, major central banks have maintained a cautious stance since the last meeting, opting to assess the second-round inflationary effects of higher energy costs before adjusting policy positions.
Turning to the Common Monetary Area (CMA), Dr Letete said South Africa’s near-term growth prospects had been downgraded mainly because of heightened global uncertainty and lower disposable incomes.
Meanwhile, higher energy prices pushed headline inflation in South Africa to 4.0 percent in April 2026, mainly through rising transport costs. As a result, the SARB increased its policy rate to 7.0 percent per annum.
“Headline inflation rose to 3.1 percent in April 2026 mainly due to the global energy shock, reflecting the knock-on effect on transport costs as the dominant driver of inflation. Meanwhile, the medium-term inflation outlook has been revised upward, with headline inflation projected to reach 4.8 percent in 2026 and 5.0 percent in 2027 before moderating to 4.4 percent in 2028.
“Other risks to the inflation outlook include exchange rate pressures, imported cost pressures and the potential reinstatement of fuel levies,” he said.
Dr Letete added that domestic economic activity remained subdued, although the Composite Indicator of Economic Activity (CIEA) recorded modest growth in early 2026.
“This was mainly supported by domestic demand, recovery in textile exports facilitated by the AGOA extension, and improved performance in financial services. Elevated fuel prices, if sustained, risk dampening household purchasing power and business confidence, particularly in transport-intensive sectors.
“The MPC will continue to closely monitor global developments, especially the evolution of recent energy price and climate shocks, inflation trends and developments in Lesotho’s external position. Should reserve adequacy come under threat, the MPC stands ready to take decisive action to defend the peg.”