Tunis — At a recent parliamentary hearing, Central Bank of Tunisia (BCT) Governor Marouane El Abassi described a decision to raise the key interest rate by 100 basis points, from 6.75% to 7.75%, as “difficult but necessary.” The increase was announced in a BCT press release after Executive Board meetings held Feb. 16 and 19.

Abassi claimed at the hearing on Feb. 25 that the BCT had raised rates to curb inflationary pressures and stabilize liquidity to support the banking system. The BCT Executive Board had said as much in its statement. It is the third interest rate hike in 12 months. On March 5, 2018, the BCT had raised the interest rate by 75 basis points, from 5% to 5.75%. On June 20, 2018, the bank raised it again, by 100 points, to 6.75%.

The BCT Executive Board also asserted in its press release, “As for inflation, the Board noted that monetary policy measures undertaken [since] 2016 have contributed to a relative deceleration in the pace of inflation in January 2019, [down] to 7.1% compared to 7.3% on average for the year 2018.” It also pointed to an “ongoing current account deficit of the external payments’ balance which continues to post record levels, reaching 11.2% of GDP in 2018 compared to 10.2% in 2017.” It asserted, “The positive evolution of tourist receipts and transfers of Tunisians abroad could not compensate for the worsening of the trade deficit.”

Commenting on the interest rate increase, Moez Joudi, a financial expert and president of the Tunisian Association for Local Governance, explained to Al-Monitor that the BCT's decision stems from price hikes caused by an increase in the ratio of household debt, that is, an increase in the value of consumption against the decline in production volume.