Monday, March 4

Tunisia Raises Rates to Rein In Highest Inflation in 30 Years

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(Bloomberg) — Tunisia’s central bank surprised markets by raising interest rates, as it warned that the highest inflation in more than three decades may spiral out of control and further erode the country’s fragile finances.

Banque de Tunisie on Wednesday announced a 25 basis-point increase to both its benchmark lending rate and the savings rate, taking them to 7.25% and 6.25% respectively. It was the bank’s first monetary-policy decision since early June, when it opted to keep rates on hold.

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The move may add to the government’s difficulties as it seeks financing for a budget deficit swollen by the global surge in commodity prices. Pending agreement on a new loan program with the International Monetary Fund, the North African country’s leaders have increasingly turned to domestic money markets to raise funds.

Tunisia is heavily reliant on food and energy imports, and its economy has also been hit by unrest amid the worst political tensions in a decade.

Explaining its decision to raise rates, Banque de Tunisie’s executive board cited “growing risks surrounding the future trend of inflation” and underlined the importance of coordinating economic policies “to prevent an inflation deviation which may accentuate economic and financial vulnerabilities.”.

Tunisia’s inflation rate jumped 9.1 percent in September, the government reported on Wednesday. Even before that, inflation was already at the highest levels in more than three decades, according to the central bank.

While economic activity weakened during the second quarter, the lifting of Covid-19 restrictions boosted domestic demand, though that has also put more pressure on the country’s balance of payments, the bank said.