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Wednesday 22 September 2021
HomeNewsTunisia: BCT would increase interest rate by 25 bp in 2017

Tunisia: BCT would increase interest rate by 25 bp in 2017

In order to mitigate inflationary pressures and limit the depreciation of the Tunisian dinar, the Central Bank of Tunisia (BCT) would start raising interest rates by 25 basis points throughout 2017.

Higher interest rates will have minimal impact on liquidity recovery and credit growth, according to BMI Research – Fitch Group’s economic analysis quoted by “Management and Finance Company” CFG).

The same source said inflationary pressures will increase in Tunisia in 2017, with growing pressures on the energy balance and a lower dinar impacting the prices of imported consumer goods.

In addition, average inflation of 4.4% is expected in 2017, compared with 3.8% in 2016.

The transport component, which represents 12% of the Consumer Price Index (CPI) basket, rose 2.2% in 2016 and will increase further in 2017, given the recovery in oil prices.

At the same time, price pressures from the housing and utilities sectors, averaging 5.4% in 2016, will remain high in 2017.

It should be noted that the efforts made by the Tunisian government to reduce the weight of subsidies on the budget have led to a liberalization of public service prices in recent years. The 2017 budget foresees increases of 5% in electricity tariffs and 7% in gas prices.

On the other hand, the depreciation of the Tunisian dinar against the euro and the US dollar will continue to inflate the cost of imported consumer goods.

In this regard, the same source predicts that the BCT would start raising interest rates by 25 basis points throughout 2017.

It is also expected that navigation between the divergent cycles of the US Federal Reserve and the European Central Bank will alleviate some downward pressures on the Tunisian dinar and contain pressures on imported consumer prices; thereby allowing greater flexibility in exchange rates.

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