- Decision
- Raise
- Rate change
- 25 bps
- Policy rate after decision
- 6.75%
The Monetary Policy Committee of the Central Bank of Lesotho (CBL) raised the CBL rate by 25 basis points to 6.75% in May 2026, balancing an upwardly revised inflation outlook and external stability against subdued domestic activity. The provided decisions show the rate at 7.25% in March 2025, a 25-basis-point cut from 7.00% to 6.75% in August, a further 25-basis-point cut to 6.50% in November, and holds in January and March 2026. The new rate maintains a 25-basis-point negative differential to the South African Reserve Bank repo rate, which the committee considers sufficient to sustain the exchange-rate peg and support activity, while banks should cap prime lending rates at the CBL rate plus 350 basis points. Headline inflation rose to 3.1% in April, driven mainly by transport costs following the global energy shock, and is projected at 4.8% in 2026 and 5.0% in 2027. Economic activity remained subdued despite a modest early-2026 expansion in the Composite Indicator of Economic Activity, supported by domestic demand, recovering textile exports and financial services. Net International Reserves stood at USD1.227 billion on May 19, USD217 million above the target floor, leaving the peg well capitalised. Globally, the Middle East conflict, the near-closure of the Strait of Hormuz, higher oil and gold prices, and food and climate risks have weakened growth prospects and raised inflation pressures. Future decisions will remain data-dependent, and the committee stands ready to act decisively if reserve adequacy threatens the peg.
Rate evolution
Over the period covered, the Central Bank of Lesotho lowered the policy rate by 75 basis points from 7.25% to 6.50%, shifting from an initial hold to easing, with a pause in September, another cut in November and holds in January and March 2026, before raising it by 25 basis points in May, holding it in July and increasing the CBL Rate by another 25 basis points to 7.00% in September. The initial March hold reflected modest growth, a January contraction, moderate inflation and heightened global uncertainty, while later easing was supported by contained inflation, a fragile recovery and South African Reserve Bank cuts, with decisions throughout anchored by the need to preserve the loti-rand peg through adequate reserves and close regional alignment.
In November, with the economy still subdued, headline inflation moderating, reserves improving and South Africa again easing, the Monetary Policy Committee cut the policy rate to 6.50% and raised the Net International Reserves target floor, while warning that domestic demand and inflation expectations remained elevated. On January 30, 2026, the committee held the rate at 6.50% as domestic activity rebounded, inflation eased to 4.1% in December 2025 and the South African Reserve Bank maintained its rate, and on March 27 it held again as inflation remained contained, reserve buffers stayed strong and the economy operated below potential. On May 29, the committee raised the policy rate to 6.75% after the South African Reserve Bank increased its repo rate to 7.00% and the global energy shock lifted the domestic inflation outlook, before holding the CBL Rate on July 24 as domestic activity weakened, reserves remained adequate to safeguard the peg and rising transport costs pushed inflation higher. On September 24, the committee raised the CBL Rate to 7.00% after the South African Reserve Bank increased its policy rate to 7.25%, citing increased upside risks to inflation and tighter regional and global financial conditions despite contained domestic inflation, weak demand and an external position adequate to support the peg, and judged the resulting 25-basis-point differential sufficient to sustain the peg and support domestic economic activity.