Inflation in Lesotho and Swaziland managed to ease from double digits in 2002 to around 7% in 2003, tracking South African economic patterns, Standard Bank says in research briefs.
Lesotho’s average annual inflation rate dropped to 7,2% in 2003 from 11,3% in 2002 mainly due to an increase in consumer prices by 0,1% year on year in December. The Southern African kingdom’s inflation rate stabilised largely because of lower food price hikes in 2003, said Standard Bank economist Jan Duvenage, author of the briefs.
Swaziland’s average annual inflation rate fell to 7,36% in 2003 from 11,9% previously. Food inflation, which accounts for almost 25% in the consumer price index, continues to decline. Duvenage pointed out that food aid may be required for about 150 000 people in the tiny monarchy this year.
Duvenage expects South Africa’s low inflation rate and strong rand to continue to moderate inflation in its two neighbouring kingdoms. Lesotho’s loti, the Namibian dollar and Swazi emalangeni are all pegged to the rand on a one to one exchange basis. The four Southern African countries belong to a common monetary area. The rand — and therefore also its three common monetary area peers — was named the second-best performing currency against the US dollar in 2003.
“The continued strength has negatively affected many export firms that bet on a weaker exchange rate to maintain profitability,” Duvenage said.
“Prime rates have equalised in Swaziland and South Africa, and Swaziland’s discount rate is the same as South Africa’s repo rate. In January Swaziland’s prime rate was 11,5% and the discount rate 8%.
“Lesotho’s interest rates generally track South Africa’s and broadly similar trends can be expected in the medium term,” he continued, adding that it is likely Swaziland’s rates too will continue to track South Africa’s.
Lesotho, a landlocked kingdom surrounded by South Africa, has a population of 1,9-million, while Swaziland with a population of 1,2-million is the smallest in the region. – I-Net Bridge