By Avite Mbabazi
The recently increased repo rate by the Central Bank of Eswatini (CBE) is still the lowest among the Common Monetary Area (CMA) countries. South Africa and Lesotho who are members of the CMA have the highest interest rate at 7% compared to Eswatini’s 6.5%.
Currency unions are common. A currency union is an agreement between sovereign countries to share a common currency or mutually agree to peg their exchange rates to another nation’s currency in order to keep the value of their monies similar. CMA currencies are pegged at par with the South African Rand.
Alongside Eswatini, the nations of South Africa, Lesotho, and Namibia form the CMA which was formally enacted in 1986 but has origins dating as far back as 1974, the same year the Lilangeni was first issued as the national currency of the then newly Independent Swaziland and pegged at par to the Rand.
The Common Market Area (CMA) is a unique monetary union in that member countries issue their own unique national currencies and each country has a degree of independence in enacting monetary policies.
|Discount/repo rate (%)
The figures are from November 2022 Monetary Policy statements by the respective countries’ central banks
The discount rate sometimes also referred to as the repurchase rate or repo rate is the rate at which private sector commercial banks borrow money from central banks. It is a basis for the rates of other rates set by commercial banks, including the prime lending rate which is the interest rate banks use to lend to the most creditworthy customers.
The effects of a change in the discount rate are felt throughout the economy because other lendings and interest rates are linked to the repo rate. Indeed, as soon as the discount rate was announced by the CBE to have increased to 6.5%, commercial banks subsequently went on to announce that they were raising their prime rate to 10%.
Interest rates are regarded by most as the best tool that central banks possess to combat inflation. Overall inflation in Eswatini slowed down to 5.5% in October from 6.7% in September according to the CBE.