PRESS RELEASE OF THE BCT'S EXECUTIVE BOARD MEETING HELD ON 22 MARCH 2024

The Central Bank of Tunisia's Executive Board decided, during its meeting held on 22 March 2024, to keep its key rate unchanged at 8%.

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The Central Bank of Tunisia's Board of Directors met on 22 March 2024 and reviewed recent economic and financial trends at the international and national level, and the medium-term inflation outlook.

On the international level, inflation carried on with its gradual and virtually generalized easing. Despite this, the process of rapidly returning inflation to central bank target levels continues to be hampered not only by the persistence of core inflation, a measure of the fundamental trend in consumer prices still considered to be at high levels, but also by the fading of the favorable base effects linked to previous drops in energy prices.

The resilience of global demand and the gradual strengthening of international prices of raw material, in particular, are expected to weigh on the trajectory of inflation in the coming period. Thus, during the last meetings, central banks, notably those of major economies, estimated that the conditions for the pivot (turnaround in the monetary policy stance) are not yet met and remain highly dependent on a sustainable convergence of inflation, and mainly of its core component, towards central bank targets.

At the national level, the latest available economic indicators show a relative improvement in GDP growth over the first quarter of 2024. Economic activity particularly benefited from the gradual recovery in dynamics observed in the agricultural sector following a historic contraction of - 11% in 2023, cutting the annual economic growth by more than 1 percentage point. In addition, the dynamism of exports of goods as well as tourists' entries, over the first two months of 2024, are likely to boost growth. Furthermore, imports of capital goods also increased compared with the previous year.

Regarding the external sector, the current account balance improved, in February 2024, compared with the same period of the previous year. In fact, the current deficit was reduced to 163 MTD (or -0.1% of GDP) at the end of the first two months of 2024, against 797 MTD (or -0.5% of GDP) a year before. This performance bears the mark, notably, of the reduction in the trade deficit (FOB-CIF) which posted 1,784 MTD against 2,359 MTD at the end of February 2023. Despite this, the Board expressed its concern about the energy deficit widening (1,823 MTD at the end of February 2024 vs. 1,693 MTD a year before) mainly due to the deterioration of production capacities and the significant delay in the implementation of energy transition projects. This situation risks affecting the improvement in the external sector, in a tense geopolitical context, marked by the resurgence of pressure on international energy prices.

At the end of February 2024, foreign exchange reserves amounted to 23,039 MTD (or 105 days of import), down compared to their level at the end of December 2023 (26,408 MTD or 120 days of import), resulting mainly, from the reimbursement of the debenture loan contracted on the international capital market for a package worth 850 million euros. As of 21 March 2024, foreign exchange reserves posted 23,365 MTD (or 106 days of imports).

In terms of consumer prices, the gradual deceleration of inflation rate continued in February 2024. In fact, inflation rate posted 7.5% (in annual shift) against 7.8% in the previous month and 10.4% in February 2023, while remaining well above its long-term average. This relative easing was favored by the slowdown in core inflation "excluding fresh foodstuff and products at regulated prices" (7.8% vs. to 8.3% in January 2024) and prices of fresh foodstuff (11% vs. to 13.8%). On the other hand, inflation of regulated prices firmed up over February 2024 (4.4% vs. to 3% in the previous month).

Consumer prices outlook suggests a further gradual easing of inflation with a rate averaging around 7% in 2024 compared with 9.3% in 2023. However, future inflation trajectory remains subject to upward risks notably in line with the rise in international prices against a backdrop of escalating geopolitical tensions, worsening water stress and increased pressure on public finances.

The Board notes that despite the fading effects induced by external shocks, inflation continues to evolve at historically high levels and is still subject to domestic pressures. Consequently, containing the pressures stemming from an excessive rise in demand, compared with the country's production capacities, is a sine qua non for keeping inflation on a downward trend over the coming period.

The Board considers it crucial, for the moment, to further consolidate the disinflationary process as well as the resilience of the dinar's foreign exchange rate against main currencies. It decided to keep the Central Bank of Tunisia's key rate unchanged at 8%.

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