Tunisia: BCT Maintains Key Rate Unchanged At 8%

The Executive Board of the Central Bank of Tunisia (BCT) decided at its meeting on Wednesday, March 22, 2023 to keep the Bank’s key rate unchanged at 8%.

It reiterated the need to raise the required external financing in order to guarantee public finances balances, boost policy mix and undertake structural reforms intended to monitoring the twin deficits and giving impetus to economic activity.

Reviewing the latest economic and financial developments and the medium-term outlook, the Board said it stands ready to take the required measures to bring inflation back to sustainable levels.

Inflation continued its rise at a sustained pace, reaching 10.4% in February 2023 against 10.2% in the previous month and 7% in the same month of the previous year, bearing the mark, mainly, of soaring fresh foodstuff prices.

The Board is following very closely core inflation “inflation excluding fresh foodstuff and controlled-priced products,” which proved to be rigid. In fact, it amounted to 9.6% in February 2023 against 9.5% in the previous month and 6.3% a year before.

“While remaining surrounded by strong uncertainties, inflation outlook foreshadows a certain easing over the second half of 2023 but would remain at historically high levels,” the BCT warns.

With regard to growth, the Board considered that prospects for 2023 remain dependent on external demand recovery, as well as on a set of domestic factors related particularly to the situation of public finances, inflation acceleration and a persisting hydric stress.

The Board also said it is following recent trends at the international banking system’s level, and efforts to circumscribe the spread of disorders and ensures that Tunisian banks are not exposed to international banks the financial situations of which have deteriorated sharply.

While providing assurance on the banking sector’s resilience thanks to the preventive measures taken by the BCT as regards risk coverage and distribution of dividends over the last 3 years, the Board exhorts all intervening parties to send strong positive signs helping to reestablish confidence and provide economic operators with more visibility.

As for the external sector, the Board noted a significant shrinking of the current account deficit which posted -0.4% of GDP over the first two months of 2023, against -1% over the same period of the previous year, supported by a lower trade deficit, better tourist receipts and firmed up worker remittances.

According to the BCT, this performance could have been significantly better had it not been for the energy balance’s worsening (1,693 MTD for the first two months of 2023 against 779 MTD over the same period a year before).

Foreign exchange reserves posted 21.9 billion dinars or 95 days of import on March 21 2023 against 23 billion dinars or 100 days at the end of 2022.