The Executive Board of the Central Bank of Tunisia (BCT) decided at its meeting Friday to maintain the BCT's benchmark interest rate unchanged at 8%. It believes that the current direction of monetary policy would contribute to supporting the relaxation of inflation in the coming period.
According to a statement published on the BCT's website, "The Board believes that maintaining the benchmark interest rate at its current level should continue to support the disinflationary process in the coming period and bring inflation to sustainable levels."
During the meeting, the Executive Board reviewed recent economic and financial developments and inflation prospects.
On the domestic front, economic growth stood at 2.1% on a year-on-year basis (YoY) in the first quarter of 2023, following 1.8% in the previous quarter. The strong performance of export industries and the recovery of the tourism sector and related activities continued to support economic growth. However, the underperformance of extractive industries persisted in early 2023, depriving the economy of significant additional foreign currency resources.
Regarding consumer prices, the gradual relaxation of inflation, which began in March 2023, continued in May. In fact, the inflation rate reached 9.6% (YoY) in May, compared to 10.1% the previous month and a peak of 10.4% in February 2023.
This trend reflects the relaxation of underlying inflation "excluding fresh food and administered price products," which eased to 9.3% in May 2023, from 9.5% the previous month, as well as the slowdown in the pace of price growth for administered products (5% compared to 6.5% in April 2023). However, prices for fresh food products continue to rise at a rate of 19% in May 2023. The Board believes that despite this relaxation, inflation continues to remain historically high compared to the economy's productive capacity.
Recent forecasts from the Central Bank of Tunisia indicate that inflation is expected to continue gradually declining in the coming months, but the upside risks surrounding this trend remain relatively high.
The Board has taken note of the recent downgrade of Tunisia's sovereign rating by "Fitch Ratings" on June 9 and warns about the impact of this new downgrade on Tunisia's ability to mobilise external financing under acceptable conditions and on the smoothness of transactions with the outside world.
On the international front, recent information indicates a continued slowdown in global economic growth and inflation.
Concerns about a decline in activity in major countries have somewhat increased due to the Eurozone economy entering a technical recession in the first quarter of 2023.
Unlike the Fed, which paused during its meeting on June 13, 2023, the ECB continued its tightening cycle by deciding on June 15, 2023, to raise its benchmark interest rates by 25 basis points. This brought them to 4% for refinancing operations, 3.5% for deposit facilities, and 4.25% for marginal lending facilities. It expressed determination to ensure a return to inflation at its medium-term target of 2% as soon as possible.
Source: Agence Tunis Afrique Presse