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Tunisia raises key interest rate again to combat inflation

Person, Human, Shelf NurPhoto/Chedly Ben Ibrahim
The reforms are expected to include reducing food and energy subsidies

Tunisia’s central bank on Wednesday raised its key interest rate by 25 basis points (bps) to 7.25 percent to combat inflation, the bank said, the second hike in five months.

The central bank also decided to raise the interest rate on savings by 25 bps to 6.25 percent.

Inflation in the North African country rose to a record 9.1 percent in September, from 8.6 percent in August.

The last rate increase was 75 bps in May.

Tunisia, which is struggling to tackle badly hit public finances, is seeking a loan from the International Monetary Fund (IMF) in exchange for unpopular reforms, including spending cuts, and cutting energy and food subsidies.

The IMF proposals have led the country’s powerful UGTT labour union to warn the government it will lead street protests over any “painful” changes. It has opposed big state spending cuts in recent years, arguing the government should instead tackle corruption and tax evasion.

The IMF continued to call for further monetary tightening by Tunisia to tackle the North African country’s record levels of inflation.

The bank said in statement that exchange reserves reached 23.848 billion dinars ($7.34 billion), equivalent to 112 days of imports on September 28, compared to 23.313 billion dinars or 133 days of imports at the end of 2021.

The current account deficit reached -10.1 percent of GDP during the first eight months of 2022, compared to -6.6 percent in 2021, due to the worsening of the trade deficit, the bank said.

It expected that inflationary pressures will continue, driven by internal and external factors in the coming period of this year.