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Press Release of the BCT Executive Board meeting held on 17 May 2022

During its meeting held on 17 May 2022, the Executive Board examined the latest economic and financial trends and decided to raise the Central Bank of Tunisia's key rate by 75 basis points to 7.0 %, which would lead to an increase in the deposit and marginal lending facility rates to 6.0 % and 8.0 % respectively. This decision will come into effect as from 18 May 2022.

The Executive Board of the Central Bank of Tunisia met on 17 May 2022 and reviewed the latest economic and financial trends.

Internationally, the latest available data reveal a rapid and generalized acceleration in inflation around the world, which contrasts with a sluggish recovery in the world growth, weakened by fallouts from the Russian-Ukrainian crisis. Despite the downward review of the world activity, prices continue to go up in line with developments of the said crisis because the almost generalized surge in international prices of commodities and the persisting troubles at the level of the chains of supplies have increased, feeding thus inflationary pressures throughout the price chain. These pressures may be of a more lasting nature than expected.

In this context, several central banks around the world have moved towards the tightening of their monetary policies.

At the national level, the economic activity, mainly supported by the industrial sector, continued its gradual strengthening in the first quarter of 2022 to stand at 2.4% in annual shift compared to 1.6% a quarter earlier. The industrial sector largely contributed to the recovery in the volume of exports (14% in terms of annual shift after 4.4% in the last quarter of 2021). The sustained increase in imports of raw materials and semi-finished products during the period under review should encourage the continued recovery of industrial production in the months to come. Also, the improvement of the epidemiological situation and the lifting of health restrictions should support recovery of services, in particular those related to the tourism sector.

On the consumer price side, the Board noted the ongoing acceleration of inflation which reached 7.5% in April 2022 (in annual shift), after 7.2% in the previous month and 5% in April 2021, the highest level recorded since the end of 2018. This rise in inflation is due to accelerated prices of manufactured goods, which increased by 9.3% in annual shift (compared to 5.1% a year earlier) and those of food products by 8.7% (compared to 4.9% in April 2021).

On another level, the Board noted that the gradual upward trend taken by core inflation "excluding fresh food products and products at administered prices", since 2021, accelerated to cross the 7% mark in April 2022 after 6.6% the previous month, compared to 5% a year earlier.

The Board considers that spread of inflationary pressures from abroad to domestic prices, on the one hand, and the repercussions of the adjustments expected in administered prices within the framework of subsidy system’s reform, on the other hand, would be likely to maintain inflation at high levels in both 2022 and 2023.

At the level of the external sector, the Board noted the widening of the current deficit which amounted to -2.7% of GDP during the first four months of 2022 against -1.7%, in 2021, due to the deterioration of the trade balance. Moreover, the level of foreign exchange reserves stood at 23,655 MTD or 124 days of imports, on 16 May 2022, against 23,313 MTD and 133 days at the end of 2021.

The Board expresses its strong concern about the upside risks surrounding the path of inflation, in prospect, and underlines the importance of the coordination of economic policies to avoid an inflationary drift which could accentuate vulnerabilities and jeopardize the recovery of the economic activity.

The Board insists on the need to undertake, as soon as possible, the necessary structural reforms to put economic growth back on an upward trend in order to ensure macroeconomic stability and the sustainability of public debt.

After an assessment of the risks surrounding the dynamics of inflation and the external sector’s balance over the coming period, the Board decided to raise the Central Bank of Tunisia's key rate by 75 basis points, bringing it to 7% which would lead to an increase in the deposit and marginal lending facility rates to 6 % and 8 % respectively. Through this action, the Board aims to counter the inflationary pressures that are looming over the forecast horizon and to avoid faster pace of inflation and sharper external imbalances.

In addition, it was decided to raise the minimum interest rate on savings by 100 basis points, bringing it to 6%.