Tunisia’s central bank keeps key rate unchanged, warns of effects of Ukraine war

TUNIS, March 14 (Reuters) – Tunisia’s central bank held its key interest rate unchanged at 6.25%, the bank said on Monday, warning that the war in Ukraine would have big repercussions on public finances and increase inflation.

The central bank cut the rate in October 2020 by 50 basis points, aiming to stimulate investment and push faltering growth. That followed a 100-basis-point rate cut the previous March in response to the coronavirus outbreak.

The Bank said the rise in global prices for food and energy due to Russia’s invasion of Ukraine would worsen the current deficit in Tunisia and increase inflationary pressures, in the absence of urgent appropriate decisions in Tunis.

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“This situation would exacerbate the budget deficit and additional financing needs,” the bank said in statement.

Sharply rising prices for oil and grains will have “major effects on public finances” for Tunisia, a Tunisian government official told Reuters last month.

The bank called on the authorities to tighten vigilance and adopt a proactive approach to mitigate the repercussions of the Russian-Ukrainian crisis on national economic activity and overall balances.

Tunisia’s annual inflation rate reached 6.7% in January, as Tunisians suffer the loss of some foods, including sugar, oil, rice and flour, prompting unions to warn of a social explosion.

Tunisia, which subsidises domestic fuel prices and some foods, already was seeking a foreign rescue package to help it avert a crisis in its public finances before the war in Ukraine led to jumps in global oil and grains prices.

The 2022 budget is based on an average oil price of $75 a barrel, so higher purchasing costs could widen the forecast fiscal deficit already equivalent to 6.7% of the economy.

Last month, the energy ministry said each increase of one dollar in the price Tunisia had to pay for hydrocarbons would cost the state 140 million dinars ($48 million).

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