Becoming Financially Literate: Understanding Taxes, Inflation, Repo Rates, Prime Lending Rates, Interest Rates, and Their Effects

Hello, dear reader!

Welcome to the second blog post of 2025! Let’s dive into a topic that might sound intimidating but is essential for everyone who wants to take control of their finances: financial literacy. We’re talking about the key financial terms—taxes, inflation, repo rates, prime lending rates, and interest rates—that influence your money daily, whether you realize it or not.

Let’s break them down so you can understand how they affect your personal and business finances and make smarter financial decisions.

1. Taxes: The Price of Citizenship

Taxes are payments collected by the government to fund public services like education, healthcare, roads, and infrastructure. Taxes include personal income tax, VAT (value-added tax), and corporate tax.

• Example: If you earn M15,000 per month, your employer deducts PAYE (Pay As You Earn) tax from your salary.?
• Why it matters: Understanding your tax obligations enables better financial planning. For small business owners, being aware of applicable tax rates and incentives, such as the 10% corporate tax rate for manufacturing and agricultural activities, can lead to significant savings.?

2. Inflation: When Prices Keep Rising

Inflation is the rate at which the general price level of goods and services increases over time. It erodes your purchasing power—meaning your Loti buys less than it used to.

• Example? : Imagine bread cost M15 last year but now costs M18. That’s inflation in action. If your salary doesn’t increase by at least the same rate, you’ll struggle to afford the same items.
• Why it matters: For businesses, inflation increases operational costs. If you own a restaurant, rising prices for flour and vegetables could cut into your profits unless you adjust your pricing.

3. Repo Rates: The Backbone of Borrowing

The repo rate is the interest rate at which the Central Bank of Lesotho lends money to commercial banks. When the repo rate increases, banks pass on the higher costs to borrowers by raising their loan interest rates.

• Example: If the Central Bank raises the repo rate, a bank might increase the interest rate on personal loans. A loan you planned to take for M50,000 might cost you an additional M5,000 over the loan term due to the higher rate.
• Why it matters: If you’re planning a big purchase like a car or home, knowing the repo rate helps you decide whether to borrow now or wait for rates to stabilize.

4. Prime Lending Rates: For the Best Borrowers

The prime lending rate is the lowest interest rate banks charge their most creditworthy customers. Most loan products are based on the prime rate, with additional interest added depending on the borrower’s risk profile.

• Example: Suppose the prime lending rate is 10%, and you’re considered a low-risk borrower. Your bank might offer you a personal loan at 12% (prime + 2%). A higher-risk borrower might get the same loan at 15% (prime + 5%).
• Why it matters: Understanding prime rates helps you negotiate better terms. If you’re a business owner, maintaining a good credit score can help you qualify for loans at lower interest rates, saving you money in the long run.

5. Interest Rates: The Cost of Borrowing (or the Reward for Saving)

Interest rates are what you pay when you borrow money or earn when you save. They’re tied to repo and prime rates and affect everything from personal loans to savings accounts.

• Example: If you save M10,000 in a fixed deposit account at 5% interest, you’ll earn M500 over a year. Conversely, if you borrow the same amount at 15%, you’ll pay M1,500 in interest.
• Why it matters: Whether you’re borrowing or saving, understanding how interest rates work can help you make informed decisions.

How These Terms Affect Your Everyday Life

Let’s bring it all together:

• If inflation rises but your salary doesn’t, your purchasing power shrinks.
• If repo rates increase, loans for homes, cars, or business expansion become more expensive.
• If you don’t understand taxes, you might miss out on opportunities to save or, worse, fall into arrears.

These factors play a critical role in shaping financial stability for individuals and businesses alike.

How to Build Financial Literacy

1. Follow Local News: Keep an eye on updates from the Central Bank of Lesotho and Revenue Services Lesotho (RSL).
2. Use Online Tools: Budgeting apps and loan calculators can help you visualize how taxes or interest rates impact your money.
3. Ask Questions: Talk to your bank or financial advisor to better understand these terms.
4. Attend Workshops: Many organizations like TKO Financial Wellness and Advisory host financial literacy sessions to help people navigate these topics.

Final Thoughts: Knowledge Is Empowerment

Financial literacy is about empowering yourself with the knowledge to make informed decisions. Whether you’re saving for your dream home, running a business, or planning for your children’s education, understanding how taxes, inflation, repo rates, prime lending rates, and interest rates work will give you the confidence to take charge of your financial future.

Have questions or want us to dive deeper into a specific financial topic? Or perhaps you have another concept you'd like us to cover? Let us know in the comments—we’re here to help!

2025 is the year we embrace financial literacy and take control of our finances—one concept at a time. Let’s make smarter choices together!