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Tunisia: Economic activity improving; foreign currency assets down to 115 days of imports

At its monthly meeting of May, the Executive Board of the Central Bank of Tunisia reviewed the recent developments of the economic conditions both internationally and nationally, noting the continued gradual improvements in the pace of economic activity whose early signs have emerged from last March.

This improvement involves especially agricultural production and export-oriented manufacturing industries, while production in the chemical industry sector showed a significant contraction. The decline in services, including tourism and transport continued and earnings from work fell. These unfavorable factors have resulted in a widening of pressures on the current account balance despite the improvement in the level of trade balance.

The level of foreign currency assets continued to fall, reaching 10,332 MTD or the equivalent of 115 days of imports on May 20 against 13,003 MTD and 147 days at the end of 2010.

As regards price developments, inflation stabilized at 3.1% at the end of April 2011, against 3.5% earlier this year and 4.8% during the same period last year.

Regarding the exchange rate of the dinar, it has recorded from the beginning of the year up to May 24 a 3.3% appreciation against the dollar and a depreciation of 1.8% vis-à-vis the euro.

At the monetary level, money supply posted a growth of 4.4% over the first four months of 2011 against 3.6% for the same period of last year, following the increase in state claims on financing of the economy, despite the significant decline in net foreign claims.

Bank liquidity has continued to decline since the beginning of May, which resulted in an increase in the volume of the Central Bank’s intervention in the money market to reach a daily average of 1,925 MTD during this period.

Regarding the banking sector and as part of efforts to support businesses and maintain their production capacity, banks continued to provide necessary funding, as evidenced by the 5.4% increase in financing of the economy at the end of April 2011.

Meanwhile, bank deposits posted an increase in the month of April, against a fall in January and a slight increase for the months of February and March.

In light of these developments, the Executive Board decided to keep unchanged the key interest rate of the Central Bank of Tunisia and to lower the cash reserve requirement from 5% to 2%, while insisting on the financial system’s continuing support to productive sectors and its active contribution to secure conditions conducive to the resumption of economic activity at the desired pace.

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