The Central Bank of Tunisia's Executive Board decided, during its meeting held on 11 December 2023, to keep the BCT's key rate unchanged at 8%. The Board considers that the key rate's current level would contribute to a further easing of inflation over the period ahead. On the international level, the significant monetary conditions tightening, since 2022, has favored a gradual attenuation of global demand and an easing of price tensions. The sharp drop in international prices, mainly the ones of energy, contributed to the gradual easing of inflation, particularly in major economies. The disinflationary process should continue in the coming period, albeit at a lower pace. Risks of a rapid rise in international prices and of a greater resilience in demand could hamper a rapid decline in consumer prices. The maintenance of a restrictive monetary conditions' stance would continue in order to support the return of inflation to Central Banks' targets. On the national level, economic activity was strongly affect ed, over the third quarter of 2023, by the poor performance of the agricultural sector (-16.4% in annual shift) due to the persistence of the drought and the worsening of water stress, thus yielding a contraction in economic growth (-0.2% vs. +0.6% as at Q2-2023). Excluding agriculture, GDP growth rate continued to rise (+1.5% vs. +1.9% as at Q2-2023), thus favoring a gradual return of GDP, excluding agriculture, to pre-pandemic levels. The economic activity resilience, excluding agriculture, was fostered by the sound performance of the tourist sector and related activities, as well as by the gradual strengthening of industrial production. Regarding the external sector, the current operations' account yielded a -4,234 MTD balance (or -2.7% of GDP), at end of November 2023, against -11,982 MTD (or -8.3% of GDP) a year before. The significant reduction in the current deficit resulted from the ongoing contraction of the trade deficit, despite the persistent high level of energy deficit, and the good performance of the services' balance. As of 11 December 2023, Foreign exchange reserves stood at around 25 billion dinars (or 96 days of imports), against 22.1 billion over the same period of the previous year. At the level of consumer prices, inflation carried on with its virtually ongoing downward trend, initiated since March 2023, posting 8.3% (in annual shift). This trend bears the mark of the easing of the core inflation's progress pace "excluding fresh foodstuff and products at regulated prices" which dropped to 8.6% against 8.9%, a month before and the ongoing deceleration in the progress pace of prices of fresh foodstuff (11.5% vs. 13.0% in the previous month). The gradual easing of inflation, and its main components, is expected to continue in the coming period. In terms of annual averages, inflation rate would be around 9.3% throughout 2023 compared with 8.3%, a year before. Upward risks surrounding the future inflation trajectory could result from a significant and persistent increase in international prices and an accentuated water stress. The Board considers that the current level of the key rate will contribute to an ongoing deceleration of inflation in the coming period. It decided to keep the Central Bank of Tunisia's key rate unchanged at 8%. Finally, the Board took note of Fitch Ratings' maintenance of Tunisia's sovereign rating at "CCC -" and underlined the importance of pursuing the train of reforms at an even more accelerated pace to further bolster confidence in Tunisia's capacity to control its macroeconomic balances and return to growth. Source: Agence Tunis Afrique Presse