By Staff Writers
Maseru, March 24 (The Night’s Watch) – The Central Bank of Lesotho (CBL) on Monday cut its benchmark lending rate by 100 basis points from 6.25 percent to 5.25 percent per annum to try to alleviate the threat to the country’s economy from the coronavirus pandemic.
This will give debt-laden consumers and companies a financial breathing space as the world economy faces uncertain times due to the deadly and highly infectious coronavirus epidemic.
Lesotho has no confirmed case of the coronavirus.
The central bank governor Dr Retšelisitsoe Matlanyane made the interest-cut announcement following the central bank’s Monetary Policy Committee (MPC) meeting on Monday.
The cutting of the CBL rate or repo rate, the rate in which the central bank lends to the commercial banks, has an impact on the prime lending rate, which is the rate, commercial banks lend to customers.
“In the banking sector, weak economic activity is likely to increase credit risk as borrowers struggle to meet loan repayment schedules, and result in high nonperforming loans. While this would ordinarily lead to tighter financing conditions, prevailing circumstances warrant the opposite,” Matlanyane said.
She indicated that the domestic economy was likely to suffer a major blow from the coronavirus epidemic.
Among the sectors that are likely to be affected by the epidemic is the textiles and clothing sector, she said.
On the supply side, she added, the pandemic was likely to disrupt the supply of textiles and clothing inputs from China.
Externally, the global economic slowdown induced by higher uncertainty and increased precautionary behaviour, especially in the United States and South Africa, would impact negatively on the demand for textiles and clothing exports.
“These developments are likely to have a negative impact on the industry leading to a fall in production,” the governor said.
She indicated that given the relative size of the textile and clothing sector in the economy, especially in terms of employment, and its interlinkages with other sectors of the economy, these developments were likely to have adverse effects on the broader economy, especially wholesale and retail sectors, as well as transport and logistics.
The textile industry is Lesotho’s largest private employer, rivalling only the country’s civil service, with more than 40 000 employees pulling down pay checks each month.
Matlanyane said the travel and tourism sector was also likely to take a huge knock.
She said measures such as travel restrictions, aimed at containing the spread of the COVID-19 virus, were likely to have negative effects on the sector by reducing the number of tourists coming to Lesotho. NW