Tunisia Raises Interest Rate to Highest in More Than 5 Years

(Bloomberg) -- Tunisia raised its benchmark interest rate for the second consecutive month, pushing it to its highest level in more than 5 years in a bid to combat inflation and stem the decline of the dinar as it moves ahead with IMF-backed economic reforms.

The central bank raised the key rate by 25 basis points to 5 percent, it said in a statement on its website following a meeting late Tuesday. Over the past two months the central bank has raised the rate a total of 75 basis points, bringing it to its highest level since January 2012, according to data posted on its website.

The bank, in explaining the decision, cited rising prices, a widening trade deficit and increased government spending that “led the central bank to intensify its intervention” in the monetary market. The annual inflation rate accelerated to 5 percent in April compared to 3.4 percent a year earlier, and the rise in government spending pressured bank liquidity.

The dinar has weakened 6.6 percent against the euro since the International Monetary Fund said on April 17 that Tunisia needs to adopt a more flexible exchange rate. Tunisian officials have said the fund’s board is expected to review the program in June; their approval would make available a delayed second loan tranche of about $308 million.

The government has been struggling to revive the economy since the 2011 ouster of President Zine El Abidine Ben Ali set in motion the so-called Arab Spring uprisings across the Arab world. Officials have been struggling to curb rising inflation, youth unemployment topping 30 percent and lackluster growth that’s been further depressed by a downturn in tourism in the wake of militant attacks and other unrest.

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