The Monetary Policy Committee (MPC) of the Central Bank of Lesotho (CBL) held its 113th meeting on 03 June 2025. The Committee assessed the recent developments in global, regional and domestic economies, as well as developments in financial markets, to guide its policy decisions.

Global economic performance was mixed in the first quarter of 2025. While major economies grew, momentum was uneven. The United States and the United Kingdom lost some momentum, weighed down by weaker consumer and government spending, respectively. In contrast, the euro area remained steady, buoyed by domestic demand, while Japan was lifted by strong exports. China benefited from targeted stimulus, while

India’s growth was driven by manufacturing and construction. South Africa’s growth is expected to remain subdued due to weak domestic demand and global trade uncertainty. Labour markets remained broadly stable in selected economies in April 2025.

According to the IMF, global growth is forecast at 2.8 per cent in 2025, downgraded due to rising trade tensions and protectionism dampening investment and confidence. This dimmer outlook reflects mounting trade barriers, particularly tariffs, which are beginning to choke investment flows and business confidence. The risks are many: shaky financial markets, unclear policy direction, slower productivity, and growing geopolitical stress.

Lesotho’s economy contracted by 5.3 per cent in Q1 2025, reflecting weak consumption, reduced government spending, and sluggish performance in transport and construction. While manufacturing and financial services showed some resilience, driven by textile exports and credit growth, overall momentum remains fragile. The outlook is clouded by rising tariffs affecting textiles, the withdrawal of key development support such as the Millennium Challenge Corporation (MCC), and continued weakness in the diamond market.

In April 2025, Lesotho saw a dip in inflation, easing to 4.0 per cent from 4.2 per cent the previous month. This relief came as global oil prices softened and the loti gained strength against the US dollar, driving down fuel costs. Food prices held steady, offering some stability for households. Looking ahead, inflation is likely to remain contained, though storm clouds linger on the horizon—rising global trade tensions and policy uncertainty could yet stir price pressures.

From a fiscal policy lens, Lesotho maintained a disciplined and supportive stance in Q1 2025, posting a 12.9 per cent budget surplus despite softer VAT collections due to compliance challenges. The government sustained countercyclical spending, prioritizing infrastructure and social support to cushion the economy. Notably, public debt declined to 53.8 percent of GDP, aided by bond redemptions and external repayments, underscoring a commitment to fiscal sustainability. This fiscal prudence also created room for private sector activity, as improved liquidity in the banking sector supported higher credit extension.

Lesotho’s current account surplus narrowed to 0.7 per cent of GDP in Q1 2025, reflecting weaker exports and rising service outflows. Despite resilient income inflows, the trend signals mounting pressure on external sustainability. However, the level of reserves remains healthy at 5.3 months of import cover, reflecting strong SACU receipts and prudent reserve management, which continue to anchor confidence in the country’s external position.

The CBL’s Net International Reserves (NIR) increased by approximately US$40.30 million to US$1069.21 million on 21 May 2025 from US$1028.90 million on 13 March 2025. SACU receipts mainly drove this. The NIR position is projected to improve in the near to medium term.

In light of the above developments, the MPC decided to:

1.      Revise NIR target floor to US$830 from US$840 million to ensure sufficient reserves for sustaining the one-to-one peg between the loti and the rand.

2.      Reduce the CBL rate from 7.25 per cent to 7.00 per cent per annum consistent with prevailing domestic economic conditions and the broader regional monetary policy environment.