Tunisian cenbank warns of consequences if inflation rockets

Customers shop for fresh produce at a street market in the Ariana district of Tunis, Tunisia.Photographer: Chedly Ben Ibrahim/Bloomberg

Tunisia’s central bank governor warned on Wednesday inflation could spiral out of control if it did not raise interest rates, a day after government criticism of a 75-basis-point increase to 8% last week.

Economy Minister Samir Saeed said on Tuesday the hike would have negative repercussions for small and medium companies as the government contends with Tunisia’s worst economic crisis.

“I understand the central bank’s keenness to combat inflation, but I would have preferred that the hike not exceed 25 basis points,” he told reporters.

But Abassi told a news conference on Wednesday that Tunisia had few tools to fight inflation. “Inflation rates may go out of control if the key interest rate is not raised,” he said.

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Abassi said inflation in the North African country was expected to average 11% in 2023, up from 8.3% in 2022, when two interest rate hikes were made.

“The situation will be difficult if Tunisia does not reach a deal with the International Monetary Fund.”

Tunisia is seeking a $1.9 billion loan from the IMF in exchange for unpopular reforms including spending cuts, the restructuring of public companies and reductions to energy and food subsidies, Reuters said.

Labour unrest has increased pressure on the government of President Saied, who faces growing opposition 17 months after seizing executive powers in a move his foes described as a coup.