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Tunisia: BCT keeps its key rate unchanged

The Executive Board of the Central Bank of Tunisia on May 27, 2020 held its periodic meeting that focused on the recent developments in the national economic situation and analyzed the evolution of the main economic, monetary and financial indicators.

Discussions focused in particular on the international repercussions of the spread of the COVID-19 pandemic on the Tunisian economy, as well as the impact of the general lockdown that began on March 22.

Indeed, this situation weighed, in particular, on certain export-oriented sectors, notably, the mechanical and electrical industries and those of textiles, clothing, leather and shoes, as well as tourism and transport, in addition to the sectors oriented towards domestic demand.

This situation has also impacted on the investment climate and consumption.

Nevertheless, a slight improvement in economic activity is expected for the coming period in connection with the targeted lockdown easing and the gradual recovery of activity in a number of sectors.

Inflation rises to 6.3%.

On prices, the Board noted the continued rise in the inflation rate, which reached 6.3% year-on-year in April 2020, compared to 6.2% in March, due to the increase in food prices in a context of strong demand and the disruption of distribution channels recorded during the lockdown, in addition to the advent of the holy month of Ramadan.

Furthermore, the Board noted a decline in the current account deficit during the first four months of 2020, dropping to 2.8% of GDP against 3.6% for the same period of the previous year, mainly related to the reduction of the trade deficit, while tourism and labor income declined following the spread of the Covid-19 pandemic.

Stock of foreign exchange for 134 days

Net foreign capital inflows were able to cover the current deficit and consolidate net foreign exchange reserves which reached 21.724 MD or 134 days of imports on May 26, 2020 against 13.139 MD and 74 days on the same date in 2019.

In this context, the Board emphasized the need to speed up the pace of recovery of activity in the exporting sectors, such as phosphate and its derivatives and energy, given their important role in controlling the current deficit and easing tensions on net foreign exchange reserves, particularly following the anticipation of a significant drop in tourism revenue and labor income due to the coronavirus crisis.

After discussion and deliberation on the above-mentioned points, the Board affirmed that the Central Bank continues to closely monitor the evolution of economic indicators and the performance of the various sectors as well as the impact of the new coronavirus.

Besides the set of exceptional measures already taken to deal with the fallout of the health crisis, the BCT Board decided to create a new category of financing eligible for refinancing to enable banks to support businesses and meet their exceptional needs in order to ensure their sustainability and to consolidate the economic fabric and preserve financial stability.

The Board therefore decided to keep the BCT’s key interest rate unchanged.

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