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Published on 2024-03-22 20:57:04
The Board of Directors of the Central Bank of Tunisia has decided, at its meeting on March 22, 2024, to keep the Central Bank of Tunisia’s key rate unchanged at 8%.
The Board of Directors of the Central Bank of Tunisia met on March 22, 2024, and reviewed recent economic and financial developments at both international and national levels, as well as the medium-term inflation outlook.
On the international front, inflation has continued to gradually and almost universally ease. However, the process of quickly returning inflation to central banks’ target levels continues to be hindered not only by the persistence of underlying inflation, which remains relatively high, but also by the diminishing favorable base effects related to previous energy price decreases.
The resilience of global demand and the gradual strengthening of international commodity prices are expected to weigh on the inflation trajectory in the coming period. Therefore, central banks, especially in major economies, have considered that the conditions for a policy pivot are not yet met and remain largely dependent on a sustainable convergence of inflation, particularly its underlying component, towards central banks’ targets.
At the national level, the latest available economic indicators show a relative improvement in GDP growth in the first quarter of 2024. Economic activity has particularly benefited from the gradual recovery observed in the agricultural sector after a historic contraction of -11% in 2023, which had reduced annual economic growth by more than 1 percentage point. Additionally, the dynamism of goods exports and tourist arrivals in the first two months of 2024 are expected to boost growth. Furthermore, imports of capital goods have also increased compared to the previous year.
In terms of the external sector, the current account balance showed an improvement in February 2024 compared to the same period the previous year. The current account deficit narrowed to 163 million TND (or -0.1% of GDP) at the end of the first two months of 2024, compared to 797 million TND (or -0.5% of GDP) a year earlier. Despite this, the Board expressed concern about the widening energy deficit (1,823 million TND at the end of February 2024 compared to 1,693 million TND a year earlier), mainly due to the deterioration of production capacities and significant delays in implementing energy transition projects. This situation could affect the positive outlook of the external sector, in a tense geopolitical context marked by renewed pressures on international energy prices.
By the end of February 2024, foreign exchange reserves stood at 23,039 million TND (or 105 days of imports), down from their level at the end of December 2023 (26,408 million TND or 120 days of imports), due in part to the repayment of a bond issuance of 850 million euros on the international financial market. As of March 21, 2024, foreign exchange reserves amounted to 23,365 million TND (or 106 days of imports).
For consumer prices, the gradual deceleration of the inflation rate continued in February 2024. The inflation rate stood at 7.5% (year-on-year) in February 2024, down from 7.8% the previous month and 10.4% in February 2023, while still well above its long-term average. This relative easing was supported by the slowdown in core inflation “excluding fresh food and regulated prices” (7.8% compared to 8.3% in January 2024) and in prices of fresh food (11% compared to 13.8%). However, regulated price inflation strengthened in February 2024 (4.4% compared to 3% the previous month).
The outlook for consumer prices suggests a further gradual easing of inflation to around 7% on average in 2024, compared to 9.3% in 2023. However, the future trajectory of inflation remains surrounded by upside risks related to the rise in international prices amid escalating geopolitical tensions, worsening water stress, and increased pressure on public finances.
The Board notes that despite the fading effects of external shocks, inflation continues to evolve at historically high levels and remains subject to internal pressures. Therefore, containing pressures from excessive demand growth relative to the country’s production capacities is essential to maintain inflation on a downward trend in the coming period.
The Board considers it crucial, for now, to continue consolidating the disinflation process and the resilience of the dinar exchange rate against major currencies. It decides to keep the Central Bank of Tunisia’s key rate unchanged at 8%.
Source: BCT
Read the original article(French) on Tunisie Focus
