Friday, December 27, 2013

Tunisia raises rate 50 bps on inflation, FX, C/A concern

    Tunisia's central bank raised its key interest rate by 50 basis points to 4.5 percent while it reduced the rate on banks' required reserves to 1.0 percent from 2.0 percent given the need to ensure adequate funding for economic growth.
    The Central Bank of Tunisia, which has now raised its rates twice this year for a total increase of 75 basis points, said it was concerned over the balance of payments, the level of inflation and the exchange rate and its policy measures should help accelerate structural reforms.
    Tunisia's inflation rate was stable at 5.80 percent in November, the same rate as in October and September, but the central bank said in a statement from Dec. 26, following a board meeting on Dec. 25, that "some indicators point to the risk of continued pressure on inflation in coming months."
    In the first 11 months, Tunisia's average inflation rate was 6.1 percent, up from 5.5 percent in the same period last year.
    Tunisia's current account deficit amounted to 7.1 percent of Gross Domestic Product in the first 11 months of the year, down from 7.6 percent a year earlier, but the central bank "expressed its concern about the continuing pressures on the balance of payments."

    But the impact of the deficit on Tunisia's international reserves was mitigated along with improved foreign direct investments, leading to an increase in reserves to 11.736 billion dinars, or the equivalent of 108 days of imports as of Dec. 24, compared with 11.324 at the end of September.
    Last month the Qatar National Bank, part-owned by the Gulf state's sovereign wealth fund, gave Tunisia a $500 million deposit to support its foreign currency reserves.
    The central bank noted the increased liquidity needs of banks and carried out refinancing operations worth 4.793 billion dinars during December to ease tensions in money markets, up from 4.537 billion in November. The average interest rate on the money market eased to 4.74 percent since the start of December compared with 4.75 percent in November.
   Tunisia's dinar has depreciated most of this year, hitting a low of 2.30 to the euro on Dec. 16 for a decline of almost 11 percent. But since then, it has rebounded, trading today at 2.28 to the euro.
    "This relative improvement cannot, however, obscure continued pressure on the domestic foreign exchange market," the central bank said.
     Tunisia's Gross Domestic Product rose by 0.6 percent in the third quarter from the second quarter for annual growth of 2.4 percent, down from 3.2 percent, and the central bank stressed the positive trend in exports.


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