The Central Bank on Friday (21 July 2023) its discount rate by 25 basis points to 7.50%, reducing the banks interest rates to 11 to respond to easing inflation which has decreased from 6% in May to 5.3% in June 2023.
In line with the new repo rate which, all banks are now expected to adjust downwards their prime lending rate on loans extended to individuals and businesses to 11.0%.
The bad news is that the Bank expects the cost of goods and services to increase, though moderately during the rest of 2023, despite forecasting a reduction of inflation from 5.71% down to 5.55%.
The bank which normally tracks economic trends in South Africa and adjusts monetary policy accordingly to retain a competitive edge and be attractive to investment from its larger neighbour noted that South Africa had maintained its repo rate at 8.25%.
Eswatini Central Bank Governor observes that global trends and noted that geopolitical tensions and the tight monetary policy conditions continue to weight down on global growth prospects. It says that growth in advanced economies, emerging economies as well as in developing economies continues to show mixed patterns. While the USA economy grew by 2.0%, the UK grew by a mere 0.1% while China performed better at 2.2% during the second quarter 2023. While global inflation continues to moderate, still, it continues to stay above most countries’ target range. Upside risks are driven by elevated oil prices and supply chain disruptions due to the protracted Russia-Ukraine conflict among other global tensions. Both Russia and Ukraine are global leaders in the supply of grains, especially wheat which has pushed up food prices in Eswatini. The start of the war last year immediately escalated fuel prices which shot up on average of all grades of diesel and petrol from E13 to almost E21 per litre.
Russia and Ukraine are also the top producers of fertilisers. Prices for essential agriculture inputs at the start of the maize growing season shot up by 70%, and out of reach of most farmers, resulting in disaster 2023 maize harvest.
The interest rate is one of the key Monetary Policy tools applied by the Central Bank to manage the country’s financial stability. Following the meeting of its monetary policy consultative committee (MPCC) on Friday, the bank noted that Gross Domestic Product (GDP) grew by a slower 1.1% year-on-year (seasonally adjusted) in the first quarters of 2023, down from a revised growth of 6.7% during the 4th Quarter of 2022. It credited the slight growth to positive performance in both the primary sector which is mostly agriculture and mining and the tertiary sector which accounts for retail and services. It said on a quarter-to-quarter basis, economic activity grew by 2.5 seasonally adjusted, a positive trend that recovered from a revised contraction if 0.3% in the previous quarter.
Consumer index
Meanwhile the kingdom’s headline consumer inflation declined to 5.3% in June, from 6% in May. The Bank noted price decreases for furnisher and household equipment which fell to 8.1% in June compared to 10.8% in May while transport decreased to -1.7% in June from 1% in May. At the same time these trends were counteracted by increaes in price indices for recreation and culture which increaded from 2.4 in May to 4.3% in June and and clothing and footwear which increased from 6% to 6.3, possibly reflecting an expected surge in demand and cost of warm clothing in line with the cold winter season.
Country debt
The Central Bank, as the banker to Government also reports that as at 14th July 2023, gross official reserves stood at E9.5 billion, equivalent to 3 months of imports. At the same time preliminary public debt decreased by 1.5% to E33.7 billion in June 2023, compared to E34.2 billion in May, translating to 41.5% of the country’s GDP.
