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Tunisia: BCT decides to cut again its main interest rate to boost economic activity

The Board of Directors of the Central Bank of Tunisia (BCT), which met on September 5, 2011 in Tunis, has decided to cut, again, the main interest rate of the BCT by half a percentage point to bring it to 3.5%, while ensuring consolidation of the banking system resources through the preservation of the deposit rates on savings accounts. 
This decision is aimed, according to a statement of the Central Bank, to stimulate economic activity and contribute to the realization of investment plans by limiting the financial burden on businesses.
The Board voiced at its Monday’s meeting its concern about the continued negative growth caused by the decline in activity in certain key sectors (non-manufacturing industries, services…) and the decline in both domestic and foreign private investment.
This negative growth results in stepping up pressure on the balance of payments and therefore contracting the currency reserves which fell, according to the Board of Directors of the BCT to 11.067 MTD or the equivalent of 123 days of imports by the end of August 2011 against 147 days at the end of 2010.
The Board also noted the persistence of economic problems despite efforts made at the level of the monetary policy by the fall of the reserve requirement to its minimum level and reduction of the main interest rate of the Central Bank.
This situation is the result of continuing social and security instability and lack of visibility for operators, and the difference in the rate of growth compared to the hoped-for opportunities in a global economic environment that does not prompt the mobilization of external resources.
Regarding the activity of the banking sector, the tightening of liquidity continued in August, which required increased intervention of the Central Bank to inject 3,148 MTD in against 2,953 MTD in July.
This intervention resulted, in parallel, in reducing the main interest rate of the BCT and lowering the average money market rate to 3.76% against 4.25% a month earlier.
The Board recommended, in light of these developments, further strengthening the pace of financing of the economy via an active monetary policy, while ensuring the implementation of fiscal policies that promote greater speed in carrying out projects and financing public enterprises.

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