Understanding the formulation and execution of monetary policy for Lesotho.

The Central Bank of Lesotho (CBL) plays a crucial role in managing the country’s money supply. In 2004, the Monetary Policy Committee (MPC) was established to enhance transparency and accountability. The MPC includes Governors, non-executive Board members, Director of Financial Markets, Director of Research & Secretary, and an external member.

 

The MPC’s key responsibilities are:
  • Economic Review : Review the international and domestic economic developments and their likely impact on the Central Bank of Lesotho’s ability to achieve and maintain price stability;
  • Policy Formulation : The MPC considers and formulates appropriate monetary policies to maintain stable prices in the Kingdom of Lesotho.
  • Framework Review : Regularly, review and evaluate the CBL’s monetary policy framework and make necessary adjustments.
  • Procedural Rules : The MPC sets its own procedural rules and regulations for efficient operations and proceedings.

What you need to know about the CBL monetary policy

Price Stability
The main goal of monetary policy worldwide is to keep prices stable. In Lesotho, the Central Bank (CBL) focuses on achieving this as stipulated in Section 5 of the Central Bank of Lesotho Act of 2000, is to achieve and maintain price stability in the Kingdom.
Exchange Rate Peg
The CBL maintains a “soft” fixed exchange rate by pegging the Loti (Lesotho’s currency) to the South African Rand (Rand). This means they are linked together.
Net International Reserves (NIR)
To support the peg, the CBL ensures it has enough foreign currency reserves for every Loti issued.
Open Market Operations (OMO)
The CBL uses OMO to influence short-term interest rates. This helps align Lesotho’s rates with those in the Common Monetary Area (CMA), where the Rand is also used.
Managing Capital Flows
OMO helps prevent excessive capital outflows, which could strain the reserves and threaten the peg between the Loti and the Rand.
CBL Rate
This reference rate sets the tone for other rates in the banking sector, aligning with CMA rates to manage capital flows effectively.