Tunisia central bank raises key interest rate by 75 basis points

Move aims to curb high inflation, which reached 9.8 per cent in November

Prices of goods such as food and fuel continued to rise in Tunisia in November. Bloomberg

Tunisia’s central bank raised its key interest rate by 75 basis points to 8 per cent as the North African country continues to fight high inflation amid global economic headwinds.

The new rate increase, the third of last year, takes effect on January 2, the Central Bank of Tunisia said after a meeting of its board.

The bank also raised the minimum interest rate on savings to 7 per cent.

“By doing so, the central bank aims at contributing to curbing the upward trend of inflation, bringing the latter to sustainable levels in the medium term, as to protect the purchasing power of citizens, preserve the stock of assets in foreign currency and promote conditions for a sound and sustainable economic recovery,” the banking regulator said.

The latest move comes as Tunisia’s economy goes through a difficult phase amid the coronavirus pandemic, higher commodity prices and the fallout from the Russia-Ukraine conflict. The country is seeking $4 billion in funding from the International Monetary Fund to overcome the financial crisis.

Inflation remained high in the country at 9.8 per cent in November, compared to 6.4 per cent for the same month last year, according to the central bank.

“This trend, which depends mainly on soaring international prices of commodities and energy... and the upward adjustment of certain controlled prices such as fuel, took on a very worrisome generalised nature,” the central bank said.

“In particular, the main measure of core inflation "inflation excluding fresh foodstuff and controlled products," continue to rise up to 9.1 per cent over November 2022 against 6 per cent a year before, increasingly taking on a persisting character.”

The current deficit also continued to widen in November, amid the financial turmoil in the country.

Tunisia is aiming to reduce its fiscal deficit to 5.5 per cent in 2023, from a forecast 7.7 per cent this year amid austerity measures.

Spending on subsidies and on financial operations next year is projected to drop 26.4 per cent and 56.5 per cent respectively, while tax revenue will rise by 12.5 per cent, state news agency Tunis Afrique Presse reported last week, citing a report by the Ministry of Economy and Planning.

“The board expresses its deep concerns about risks surrounding Tunisia's monetary and financial balances and underlines the need to guarantee the external financing needed to public finances’ balances and to foster policy-mix,” the central bank said.

The bank added it will continue to follow economic and monetary developments closely “in order to keep a persisting inflation away from settling on a long-term basis.”

The IMF expects Tunisia’s economy to grow by 2.2 per cent in 2022 and 1.6 per cent in 2023. The World Bank estimates gross domestic product growth of 3 per cent in 2022.