Monetary Policy Statement

April 3, 2023

On the 31^st March 2023, the Central Bank of Eswatini (Bank), together with the Monetary Policy Consultative Committee (MPCC) held a meeting to consider the appropriate monetary policy stance. Taking into consideration relevant global, regional, and domestic economic factors; as well as the price and financial stability mandate, the Bank decided to increase the discount rate by 50 basis points from 6.75 per cent to 7.25 per cent.

On the global front, the IMF forecasts economic growth to slow down from an estimated 3.4 per cent in 2022 to 2.9 per cent in 2023 and then rise to 3.1 per cent in 2024. The rising interest rates to fight inflation coupled with the Russia-Ukraine war continue to weigh down on global growth. Growth in advanced economies is expected to decelerate from an estimated 2.7 per cent in 2022 to 1.3 per cent in 2023 before rising to 1.4 per cent in 2024 whilst Emerging Markets and Developing Economies are forecasted to grow from 3.9 per cent in 2022 to 4.0 per cent in 2023 and 4.2 per cent in 2024. Global inflation is set to fall from 8.8 per cent in 2022 to 6.6 per cent in 2023 and further down to 4.1 per cent in 2024.

On the regional front, the South African economy contracted by 1.3 per cent quarter-on-quarter in the fourth quarter of 2022, reflecting the adverse consequences of load-shedding. The South African Reserve Bank (SARB) revised down its growth forecasts to 2.0 per cent (from 2.5 per cent in January forecasts) for 2022 and 0.2 per cent (from 0.3 per cent) for 2023 whilst the forecast for 2024 was revised up to 1 per cent (from 0.7 per cent). South Africa’s annual inflation rate edged up to 7.0 per cent in February 2023 from 6.9 per cent the previous month. The SARB increased its inflation forecasts to 6.0 per cent (from 5.4 per cent) for 2023 and 4.9 per cent (from 4.8 per cent) for 2024 whilst the forecast for 2025 was unchanged at 4.5 per cent. The SARB increased the repo rate by 50 basis points from 7.25 per cent to 7.75 per cent in March 2023.

On the domestic front, Gross Domestic Product (GDP) recorded an increase of 3.8 per cent on a year-on-year basis (seasonally adjusted) in the fourth quarter of 2022, compared to a revised growth of 6.9 per cent in the third quarter of 2022. On a quarter-on-quarter basis, GDP contracted by 1.8 per cent (seasonally adjusted) in the fourth quarter of 2022, following a revised increase of 6.7 per cent in the previous quarter.

The country’s headline consumer inflation rose to 5.7 per cent in February 2023 compared to 5.3 per cent in January 2023. Increases were noted in the price indices for: ‘food and non-alcoholic beverages’ which increased to 17.0 per cent, ‘clothing & footwear’ and ‘alcoholic beverages & tobacco’ that grew by 5.6 percent and ‘Alcoholic beverages & tobacco’ which grew by 1.0 percentage point in February 2023. On the contrary, the above increases were somewhat offset by decreasing rates of growth in the price indices for: ‘household furniture and maintenance’ which declined to 3.6 per cent and ‘communication’ services which slowed by 0.2 of a percentage points in February 2023. The Bank revised up its inflation forecasts to 5.6 per cent (from 5.5 per cent forecast in January 2023) for 2023 and 5.3 per cent (from 5.2 per cent) for 2024 whilst the forecasts for 2025 was reviewed down to 5.1 per cent (from 5.5 per cent). Inflationary risks to the outlook remain elevated due to a high inflation outlook in South Africa which would transmit to domestic inflation through imports, weaker Rand outlook, elevated oil prices and other domestic administered price increases.

Credit extension to the private sector rose by 0.6 per cent month-on-month to reach E17.4 billion at the end of January 2023. This growth emanates from the following sectors; businesses, other (unclassified) sectors of the economy, and households & non-profit institutions serving households (NPISH). Credit extension to the business sector increased by 1.0 per cent month-on-month to reach E8.6 billion whiles credit extended to other (unclassified) sectors of the domestic economy increased by 0.1 per cent to E 698.2 million in January 2023. Credit extended to households & NPISH amounted to E8.1 billion at the end of January 2023, reflecting a marginal increase of 0.1 per cent over the month. The stock of non-performing loans amounted to E1.0 billion at the end of January 2023, depicting a month-on-month rise of 6.4 per cent and 1.7 per cent year-on-year.

As at 24 March 2023, gross official reserves stood at to E 7.0 billion equivalent to an import cover of 2.3 months. Preliminary figures indicate that total public debt increased by 1.7 per cent to E32.03 billion at end of February 2023 from E31.50 billion recorded in the previous month, translating to an equivalent of 39.5 per cent of GDP.

The Bank will continue to monitor international and domestic developments that influence the movements of inflation and will act appropriately in line with its mission to foster price and financial stability that is conducive to the economic development in Eswatini.

Dr. Phil Mnisi

GOVERNOR