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HomeFeatured NewsTunisia: BCT explains inflation, justifies 6.75% MMR and announces cushioning measures

Tunisia: BCT explains inflation, justifies 6.75% MMR and announces cushioning measures

The Executive Board of the Central Bank of Tunisia decided at its meeting on June 13, 2018 a 100 basis point increase in the key rate of the BCT, bringing it from 5.75% to 6.75%.

“This decision was made after examining recent indicators of international and national economic conditions, in particular the analysis of the latest developments in inflation and prices and their prospects in the coming months”, the CenBank said in a statement made public Thursday, June 14, 2018.

According to this explanation, “inflationary pressures may be exacerbated further by the end of the year with adverse effects on both the recent recovery in economic growth and the purchasing power of citizens, and thus appropriate preventive action on interest rates is essential “.

The inflation rate, in May 2018, stood at 7.7% year-on-year, compared to 4.8% in May 2017.

“This surge in inflation bears the mark of the substantial rise in food products inflation (+ 9.3% vs. + 3.9%) and manufactured goods (+ 9.2% year-on-year vs. + 5.5%), strongly impacted by the effect of the depreciation of the dinar and that of wage increases, especially in 2017 “, explains the BCT.

The Central Bank also said “core inflation, (excluding products with administered prices and fresh food products, which products are insensitive to the actions of monetary policy) that reflects the structural rise in prices also reached 7.7% in May 2018, year on year.

Its persistent character remains a source of concern for the monetary authorities “.

Aware of the impact of its latest decision to increase the benchmark interest rate and its impact on the credit that involves natural and legal persons, the BCT indicates in its press release that “in perspective, inflation is likely to trend upward and will be around 8% on average for the whole of 2018 “. Bad news, but that also has its explanation and the BCT gives it.

This is “the surge in international energy prices and most commodities, the rise in inflation among our major partners and rising wages without productivity improvements.”

All this, not forgetting, as the BCT further explains, “the persistence of the trade deficit at an unsustainable level and the acceleration of domestic demand for consumption that would come from the tourism sector with a promising season ahead”.

All of these factors would help to push inflation to levels that have not been achieved for nearly three decades, as the BCT still predicts.

Right in its boots of guardian of inflation, the BCT stresses that “this monetary policy action confirms the determination of the BCT to conduct a proactive monetary policy to curb inflation which has recorded a sharp acceleration in 2018 and that to settle at levels detrimental to any revival of economic activity and financial stability as a whole “.

And in order to pass the pill, the BCT has also decided a number of cushioning measures “to allocate necessary liquidity through the establishment of new facilities to provide structural liquidity, namely a six-month tender window for banks, dedicated to refinancing loans granted for new investment projects, especially those initiated by SMEs.

According to the BCT press release, “this mechanism, which introduces a new dynamic into the BCT’s refinancing policy, aims in the end to provide the banking system with more stable liquidity and to encourage them to finance SMEs, as part of a better allocation of appropriations targeting the productive sectors”.

Another accompanying measure, announced by the employers’ federation of bankers which is the APTBEF is the exclusion of housing loans from the scope of the increase in the BCT key rate. The housing loan will not increase for the moment

It remains to be seen whether this explanation will convince those who are already crying foul on the BCT that would make money more and more expensive, by raising its policy rate by 175 basis points in just two months, and if these cushioning measures will succeed to calm the anger of the bosses against the rising cost of money.


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