At its last meeting in 2024, the Executive Board of the Central Bank of Tunisia (BCT) reaffirmed its orthodoxy of keeping its key interest rate unchanged (8% on December 24) and continuing to pursue a prudent monetary policy.
In a press release published on the official website of the BCT, it was stated that this decision was taken in view of the risks associated with the inflation trajectory.
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 inflation continues to slow the pace of monetary easing.
Several central banks continue to favor 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).
In addition, available economic data suggest that economic growth will continue to strengthen in the last quarter of 2024.
In the external sector, the current account deficit narrowed to 2,611 MTD (or 1.6% of GDP) in the first eleven months of 2024, compared to 3,464 MTD (or 2.3% of GDP) a year earlier.
This result reflects the significant consolidation of expat remittances income and tourism receipts, despite a slight deterioration in the trade balance.
Improvement in deficit and easing pressure on dinar
The improvement in the current account deficit and the easing of pressure on the dinar’s exchange rate against the major currencies have contributed to the rebuilding of foreign exchange reserves, despite the substantial expenditure required to service the external debt in 2024.
Net foreign exchange reserves stood at 25.6 billion dinars (or 115 days of imports) on December 26, 2024, compared with 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 in 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 with 6.4% in the previous month, mainly as a result of the significant fall in consumer prices for olive oil (-3.1% compared with +16% in the previous month).
On the other hand, fresh food inflation rose to 14.1% (year-on-year) in November 2024, from 13% in the previous month. Inflation in products at administered prices rose to 3.7%, from 3.5% in October 2024, due to the increase in the price of coffee services.
Excluding food and energy, inflation remained stable at 6.3% in November 2024, for the second month in a row.
Inflation at 6.2% in 2025!
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 are likely to put pressure on production costs and further stimulate demand in a context of weak production capacity.
In terms of annual averages, the inflation rate is expected to be around 7% in 2024 as a whole, before declining to 6.2% in 2025.
The future inflation trajectory remains subject to several upside risks.
It would depend on developments in international commodity and raw material prices and on the ability to manage fiscal imbalances.
The Council 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 capacities.
