Tunisia's central bank hikes interest rate to fight inflation

Tunisia’s central bank raised its main interest rate to 4 percent to curb inflation. (Reuters)

Tunisia’s central bank raised its main interest rate to 4 percent on Wednesday, its second rate hike in seven months, to fight rising inflation.

The central bank last tightened the rate by 25 basis points to 3.75 percent on Aug. 29 last year.

“The bank decided to raise the interest rate by 25 points basis to 4 percent,” an official at the central bank told Reuters.

Central bank governor Chedli Ayari told Reuters last September in an interview that the bank may hike interest rates by 25-50 basis points to fight rising inflation in the economy, which is gradually recovering from political turmoil.

Inflation in February stood at 5.8 percent against 6.0percent in January. Ayari said in the interview last year that the highest rate the bank should tolerate would be 5 percent.

In addition to high food prices, the economy faces problems due to the crisis in the euro zone, the main market for its exports and the source of the majority of its tourist visitors.

The country’s reserves of foreign currency have also been falling.

“The central bank's foreign reserves fell to 11.230 billion dinars, or the equivalent of 106 days of imports, on March 26from 119 days at the end of 2012," the central bank said in a statement on Wednesday.

In contrast to nearby Egypt, where political unrest has put most economic reforms on hold, Tunisia is pressing ahead with tax hikes and reductions in expensive government subsidies that are straining the state budget.

This month authorities raised most fuel prices for the second time in six months, lifting petrol prices at the pump by 6.8 percent. Taxes on alcohol increased this month, and several weeks ago the state-controlled milk price rose.

Also this month, the government imposed a levy of 1 percent on salaries above 1,700 dinars ($1,075) per month to help fund the remaining subsidies on fuel and food.

Last Update: Saturday, 30 March 2013 KSA 11:26 - GMT 08:26