Tunisia - At its meeting on Saturday, the Executive Board of the Central Bank of Tunisia (BCT) decided to keep its key interest rate unchanged at 8% and to continue to pursue a prudent monetary policy. 

This decision was taken in view of the risks associated with the inflation trajectory, reads a press release published by the BCT after the meeting.

According to the same source, the board reviewed the latest economic and financial developments, both internationally and domestically.

On the international front, central banks have made significant progress in fulfilling their primary mandate of price stability.

Inflation is now close to target in most countries. Nevertheless, the persistence of core nflation continues to slow the pace of monetary easing.

Several central banks continue to favour a cautious approach to policy rate adjustments in order to ensure that inflationary pressures dissipate and that inflation converges to the target on a sustainable basis.

Diminishing inflationary pressures and monetary easing in the major economies should support economic growth, which is proving resilient despite an international environment fraught with risks and uncertainty.

On the domestic front, economic growth remained on an upward trend in the third quarter of 2024 (1.8% year-on-year, compared with 1% in the previous quarter), supported by the significant increase in domestic demand (4.1%, compared with 2.6% in the second quarter of 2024).

Looking further ahead, available economic data suggest that economic growth will continue to strengthen in the final quarter of 2024.

In the external sector, the current account deficit narrowed to TND 2,611 million (or 1.6% of GDP) in the first eleven months of 2024, compared to TND 3,464 million (or 2.3% of GDP) a year earlier.

This result reflects the significant consolidation of workers' remittances and tourism receipts, despite a slight deterioration in the trade balance.

The improvement in the current account deficit and the easing of pressure on the dinar's exchange rate against major currencies have helped rebuild foreign exchange reserves, despite the significant expenditure on external debt servicing in 2024.

Net foreign exchange reserves amounted to TND 25.6 billion (or 115 days of imports) on December 26, 2024, compared with TND 26.4 billion (or 120 days) at the end of December 2023.

With regard to consumer prices, after remaining stable at 6.7% for three consecutive months, the inflation rate resumed its gradual downward trend in November 2024 and stood at 6.6%.

This slight easing of inflation was mainly due to the fall in core inflation "excluding fresh food and products at administered prices", which stood at 5.8% in November 2024 compared to 6.4% in the previous month, mainly due to the significant fall in consumer prices for olive oil (-3.1% compared to +16% in the previous month).

On the other hand, fresh food inflation increased to 14.1% (year-on-year) in November 2024, after 13% in the previous month. Inflation for products at administered prices rose to 3.7%, from 3.5% in October 2024, due to the increase in the price of coffee services.

It should be noted that inflation excluding food and energy remained stable at 6.3% in November 2024, for the second month in a row.

The latest forecasts point to a continuation of the gradual downward trend in inflation, albeit at a slower pace than previously expected.

This is because expected wage increases in both the private and public sectors are likely to slow the rate of decline in inflation in the short term.

These increases should put pressure on production costs and further stimulate demand in a context of weak production capacity.

In terms of annual averages, the inflation rate should stand at 7% for 2024 as a whole, before falling back to 6.2% in 2025.

Several upside risks to the future inflation trajectory remain.

It would depend on developments in international commodity and raw material prices and on the ability to manage fiscal imbalances.

The Board considers that the persistence of inflation at relatively high levels and the presence of significant upside risks in the short and medium term could undermine price stability and hinder the process of consolidating the country's economic and financial capacity.

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