Tunisia’s central bank raised its key interest rate to 5.75 percent from 5.00 percent on Monday to tackle inflation that has hit the highest level since 1990.
The hike is the first under new central bank governor Marwan El Abbasi, who pledged last month after his appointment was approved by parliament to take “extraordinary measures” to end an economic crisis and bring down inflation.
The central bank said in a statement that it had taken its decision after analysing “the evolution of monetary aggregates and macroeconomic data, as well as leading indicators of the national situation”.
Tunisia’s annual inflation rate rose to 7.1 percent in February from 6.9 percent in January, its highest reading for nearly 28 years, official data showed.
The central bank had last raised its key interest rate from 4.75 percent to 5.00 percent last May, the second of two hikes that month as it tried to halt a slide in the dinar currency, which has hit historic lows against the euro and the dollar.
The dinar has slumped as a worsening trade deficit has eroded Tunisia’s foreign currency reserves to cover only 80 days of imports for the first time in 16 years.
Tunisia’s trade deficit widened in December to $6.25 billion, a record level.
The country has been praised as the only democratic success among the nations where “Arab Spring” revolts took place in 2011. But successive governments have failed to trim deficits and create economic growth.
Tunisia’s parliament approved last month a plan by the central bank to sell bonds worth $1 billion in the second half of March to help finance the 2018 budget.
The government forecasts the budget deficit to fall to 4.9 percent of gross domestic product in 2018, from about 6 percent expected in 2017. It aims to raise GDP growth to about 3 percent next year from 2.3 percent this year.
Protests against tax and price increases erupted this year and social tensions over the economy are still simmering.
Protesters calling for jobs have brought Tunisia’s entire phosphate output to a halt by staging sit-ins at installations of sole Tunisian phosphates producer, the state-run Gafsa Phosphate (CPG).