Tunisia Increases Interest Rates by 100 Basic Points to 6.75%

A man walk out of the Central Bank in Tunis, Tunisia, April 27, 2016. REUTERS/Zoubeir Souissi

Enterprise Television- Tunisia Increases Interest Rates by 100 Basic Points to 6.75%

The Central Bank of Tunisia on Wednesday raised its key interest rate by 100 basis points to 6.75 per cent, recording the second increase in three months, to tackle inflation that has reached the highest level since 1990.

The bank’s last rate increase was in March, by 75 basis points. Annual inflation hit 7.7 per cent in May.

The International Monetary Fund last month said that anchoring inflation expectations through additional rate increases would be crucial if price pressures did not moderate quickly.

Ezzedine Saidan, a local analyst said “The decision will have a negative impact on investment and on the cost of production which will rise significantly. But it is inevitable in light of the high rates of inflation.”

Inflation is expected to reach about 9 per cent by the end of this year for the first time.

The country has been praised as the only democratic success among the nations where “Arab Spring” revolts took place in 2011. But successive governments have failed to trim its fiscal deficit and create economic growth.

The North African country has said it needed $3 billion of loans to finance a deficit of $14 billion, and the central bank said this month the time was right to issue a Eurobond worth $1 billion.

The government forecasts the budget deficit to fall to 4.9 per cent of gross domestic product in 2018 from about 6 percent expected in 2017. It aims to raise GDP growth to about 3 percent next year from 2.3 per cent last year.