Tunisia CB chief ready to step in to stem inflation

ABU DHABI: Tunisia’s monetary policy is still in a tightening mode and the central bank will intervene with various tools, including interest rates, if inflation starts climbing again, Tunisian central bank governor Chadli Ayari said yesterday.

Speaking to reporters on the sidelines of a meeting of Arab central bankers in Abu Dhabi, he also said the country’s foreign exchange reserves had rebounded to about 103 days’ worth of imports, which was a “more or less safe” level. Tunisia has been struggling with high inflation and pressure on its foreign reserves as it negotiates a political crisis. The Islamistled government agreed on Saturday to resign after talks with secular foes to form a caretaker administration, which will prepare for elections in an effort to safeguard the transition to democracy.

Inflation fell for the second month running to reach 6.0 percent in August, compared to March’s 6.5 percent, which was the highest rate in at least five years. The central bank raised its key interest rate by 0.25 percentage point in March, its second rate hike in seven months, to fight inflation.

According to official data, foreign currency reserves on Sept. 25 totalled 11.291 billion dinars, the equivalent of 103 days of imports, after inflows of foreign aid and an overseas bond issue. In June, reserves had dropped to 94 days. In a statement on Thursday, an International Monetary Fund mission to Tunisia said: “Fiscal and external imbalances are continuing to worsen, and the reforms (most of which are already in progress) are facing some constraints and are proceeding more slowly than anticipated.

“The short-term risks are on the downside, and vigorous measures - including in the implementation of reforms - are essential, notwithstanding the constraints associated with political developments.” Ayari said yesterday: “We will see if the increase of the rate of interest is justified or not. That depends on different factors including how inflation is behaving. So far we still have a rather high rate of inflation but it is starting to stabilize...and we expect it to decrease.”

He added, “If by any bad luck we see inflation restart going up, which is also possible, we will intervene with different means including higher interest rates.” He predicted the inflation rate would be at 5.65.7 percent by the end of 2013, and around 4 percent by the end of 2014. The government said this month that it expects the economy to grow 4.0 percent next year after an expected 3.6 percent expansion this year. Ayari predicted yesterday that gross domestic product would expand between 3.0 and 3.6 percent in 2013. — Reuters