THE Central Bank of Lesotho (CBL) says the labour market deteriorated during the second quarter of 2018, owing to job losses in different sectors.
The apex bank, whose Monetary Policy Committee (MPC) recently held its by-monthly meeting, said job losses occurred after some manufacturing factories closed down, while the number of Basotho migrant workers in South African mines has consistently continued to decline.
The committee considers international, regional and domestic economic developments and financial markets’ conditions, to determine appropriate monetary policy action to take to maintain price stability.
“The performance of the domestic economy was mixed during the second quarter of 2018,” said acting Governor Masilo Makhetha.
“While the CBL indicator of economic activity points towards recovery, developments in the labour market reflect deterioration.
“Employment in the manufacturing industry has declined, with job losses recorded following closure of some firms. In addition, the number of Basotho migrant workers in the South African mining industry has maintained a steady downward trend.”
Meanwhile, Dr Makhetha indicated that the committee has decided to maintain the CBL lending rate unchanged at 6,5 percent per annum, but has however, decreased the net international reserves (NIR) target floor from US$800 million (about M11, 3 billion) to US$690 million (about M9, 8 billion).
“The global growth is projected to remain broadly favourable in the short term. However, expansion in the advanced economies is becoming less synchronised and risks to the outlook are escalating, including rising trade tensions between the US and China. The ongoing discussion about the Brexit agreement with the European Union is also a major near-term risk to the global economy.
“In addition, uncertainty is increasing among emerging markets and developing economies, with growth becoming more uneven, due to rising oil prices, tightening global financial conditions and changing investor sentiment. These factors have resulted in reduced capital inflows, rising financing costs and exchange rate pressures in countries such as South Africa, with adverse implications for Lesotho’s economy.”
Dr Makhetha further said given the prevailing global developments, the committee will be on the lookout to take necessary action.
“In summary, the committee noted that, while global growth outlook remained favourable, risks are mounting. As such, the committee will continue to monitor the global developments and their likely impact on domestic macroeconomic conditions, especially the CBL net international reserves (NIR), to take corrective action when needed.
“Having considered the above developments, the MPC decided to (1) decrease the NIR target floor from US$800 million to US$690 million, (2) Maintain the CBL rate unchanged at 6, 5 percent per annum.”
He said the annual rate of inflation, measured by the change in the consumer price index (CPI) for all items, rose from 4,1 percent in July to 4,7 percent in August 2018.
The categories that showed significant inflation increases include food and nonalcoholic beverages; clothing and footwear; housing, water, electricity, gas and transport.
On the broad measure of money supply (M2) increased by 0, 7 percent between June and July 2018, driven by growth in net foreign assets that was however, moderated by a reduction in net domestic claims. Total private sector credit maintained a strong upward trajectory, despite registering a modest monthly growth during the review period. On annual basis, the main credit growth drivers were mortgage and personal loans. In contrast, credit to business enterprises remained weak.
“The external sector position improved during the review period. Despite a higher current account deficit, surpluses in the capital and financial accounts boosted reserve assets. In this regard, gross international reserves rose from 4 months of import cover in the first quarter to 4, 2 months during the quarter ending in June 2018.
“The government budgetary operations resulted in a surplus of 1, 2 percent of the gross domestic product during the first fiscal quarter of 2018/19 (April –June 2018), on account of lower 73rd CBL MPC Statement — 25th September 2018 spending relative to mobilised revenue. In the context of Lesotho’s membership of the Common Monetary Area of Southern Africa (CMA), a healthy fiscal position is essential to support the maintenance of adequate international reserves, to bolster the exchange rate parity,” Dr Makhetha said.