Tunisia holds rate steady, sees signs of easing inflation

    The central bank of Tunisia held its benchmark interest rate steady at 3.75 percent, despite expectations for an increase, saying inflationary pressures were still rising though there were some initial signs of an easing that still had to be confirmed.
    Banque Centrale de Tunisie said there was a recovery in the export of textiles, clothing, and mechanical and electrical industries in September and early October but this was outpaced by higher imports of energy, capital and consumer goods.
    This resulted in a significant widening of the current account deficit to 6.4 percent of Gross Domestic Product in the first nine months of the year, up from 4.9 percent in the same period last year, putting pressure on foreign exchange reserves, which fell to the equivalent of 94 days of imports by Oct. 25 compared with 113 days in 2011.
    Earlier this month, the governor of the central bank had told Reuters he was worried about the inflation rate, which he said would be close to 6 percent by the end of the year, and he wanted to raise interest rates by 25 or 50 basis points.
    He added that the central bank did not target a specific inflation rate but would tolerate at rate of up to 5 percent. In August the central bank raised its rate by 25 basis points.
    In September, Tunisia's inflation rate rose to an annual rate of 5.7 percent, up from 5.6 percent.

    The central bank said this increase was due to rising food prices, but noted "the beginnings of an easing of inflationary pressures, but this trend has to be confirmed in coming months."
    Tunisia's economy has gradually be rebounding after shrinking by 2.2 percent in 2011 due to disruption from last year's political upheaval that gave rise to the Arab Spring across North Africa.
    In the first quarter, Tunisia's GDP expanded by 3.2 percent from the fourth quarter, for an annual growth rate of 4.8 percent compared with an annual contraction of 1.4 percent in the fourth and a 7.8 percent drop in the third quarter last year.
    Despite the fallout on Tunisia from Europe's debt crises, the central bank said activity in the agricultural and industrial sectors was positive and there was an improvement in the pace of foreign direct investment.
    "However, the board registered the persistent pressure on financial balances in connection with the continued expansion of the current account deficit and the decline in net assets in foreign currencies, as well as rising inflationary pressures," the bank said in a statement.
   
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