Lesotho cuts rate 4th time in 2020 as economy to shrink

     Lesotho's central bank lowered its key interest rate for the fourth time this year and slashed its growth forecast for this year to a contraction of 5.7 percent.
     The Central Bank of Lesotho (CBL) cut its rate by another 50 basis points to 3.75 percent and has now cut the rate 275 points this year following cuts in January and at extraordinary meetings of its monetary policy committee in March and April.
     Since July 2019, when CBL began its current easing cycle, it has cut the rate 325 basis points.
      "The rate, set at this level, will ensure that the domestic cost of borrowing and lending will be aligned with the cost of funds elsewhere in the region," CBL said, lowering its target for the floor of net international reserves to US$530 million from $660 million.
     "The NIR target remains consistent with the maintance of the exchange rate peg between the loti and the South African rand.
     CBL's rate cut was decided at a meeting of its policy committee on May 22, rather than on May 26 as scheduled. On May 21 the South African Reserve Bank (SARB) cut its policy rate by 50 basis points to 3.75 percent, its fourth rate cut this year.
      Lesotho is surrounded by South Africa and its economy relies on inflows and workers' remittances. Along with Namibia and Eswatini (former Swaziland), Lesotho is part of the rand monetary area that uses South Africa's rand as a common currency. In 1980 Lesotho introduced its own currency, the loti, which trades at par with the rand.
    "The domestic economy has generally been weak," CBL said, adding measures of economic activity had declined 0.6 percent in March compared with a 0.2 percent decrease in February.
     The labour market showed a decline in employment in both manufacturing and migration mineworkers, consistent with lower demand for some of the large firms' products, while government employment had improved slightly, CBL said.
     "While economic forecasts are likely to change, the economy is expected to contract by 5.7 per cent in 2020 mainly due to COVID-19 infection and control measures," CBL added.
     In March CBL forecast growth this year would be lower than its earlier forecast of 2.2 percent and 2021 growth of 4.1 percent.
     In 2019 Lesotho's economy grew an estimated 2.6 percent based on strong mining performance and a recovery in textiles.
     Lesotho's inflation rate eased to 4.0 percent in March from 4.2 percent in February while gross international reserves rose to 4.7 months of import cover from 4.3 months in the first quarter.

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