Tunisia’s Central Bank Holds Its Key Rate Amid High Inflation

TUNIS (Capital Markets in Africa) – Tunisia’s central bank kept its benchmark interest rate unchanged, as high inflation complicates efforts to overhaul an economy that’s seen little in the way of foreign investment since its 2011 uprising.

The decision to hold the rate at 5.75 percent came after Tunisia posted a stronger than expected 2.5 percent rise in economic growth in the first quarter of 2018, compared to 1.9 percent a year earlier. The annual inflation rate inched up to 7.7 percent at the end of April — a 25-year peak — and foreign reserves now cover just 73 days of imports.

The figures reflect the challenges that Tunisia, the birthplace of the Arab Spring, has faced over the past few years. Terrorist attacks, political infighting and powerful labour unions have all stymied efforts to spur an economic recovery.

The government has focused on cutting spending and gradually weakening the currency, measures backed by the International Monetary Fund, which awarded Tunisia a $2.9 billion loan in 2016.

An IMF delegation is expected to begin a two-week visit to Tunis on Thursday for a review of the program, according to Taoufik Rajhi, the minister in charge of economic reforms. The government expects to secure the fourth instalment of the IMF loan in June, he said in an interview.

In a statement released late on Tuesday, the central bank’s board said it was monitoring the factors driving up prices and would implement necessary measures to reduce risks.

The IMF gas said that risks to macroeconomic stability have risen in tandem with inflation.

The Washington-based fund said it agreed with the central bank that anchoring inflation expectations through additional interest rate increases would be necessary if inflation doesn’t fall soon.

Source: Bloomberg Business News