Central Bank of Tunisia Maintains Key Interest Rate at 8%
The Central Bank of Tunisia's board of directors has decided, unsurprisingly, to maintain its key interest rate at 8%. From the press release published last night, we have selected the main points to retain.
First Key Point: Gradual Recovery of Growth
The available data in the Central Bank's dashboard suggests a gradual recovery of growth in the second quarter. This improvement is driven by agricultural activity and services. Although the cereal harvest will be modest in absolute terms, it will be significantly better than last year's catastrophic harvest. Additionally, tourism has been performing well, and 2024 could become a reference year in terms of both tourist numbers and revenue.
Second Key Point: Energy Deficit Undermines Efforts
The energy deficit is undermining all efforts made elsewhere. Representing 77.6% of the trade deficit in the first five months of 2024, compared to 57.8% in 2023, the reduction of the current account deficit has been limited. It stood at -0.9% of GDP, compared to -2.3% at the end of May 2023. As a result, foreign exchange reserves have shown strong resilience, reaching 23,620 million dinars as of June 19, 2024.
Third Key Point: Concerns about Price Increases Persist
Concerns about price increases persist. Underlying inflation (excluding fresh food products and administered prices) stood at 7.3% in May 2024, compared to 7.5% in April, despite the acceleration of fresh food prices (10.8% in May compared to 9.7% in April 2024). The scenario of a gradual easing of inflation remains in place, but it is essential to monitor the sources of upward risks in the short and medium term, including the rise in international commodity prices and energy prices, exacerbated by geopolitical tensions, water stress, and public finance situation, especially in the absence of mobilization of external resources.
No Rate Cut in Sight
We understand that a cut in the key interest rate is not envisioned in the near future. We will have to wait until the last two months of the year to seriously consider a revision. In our opinion, the probability of ending the year with this level is higher than that of a reduction. We were optimistic about a rate cut in the second half of 2024. However, the local and regional context is not favorable to such a move.