Tunisia should focus monetary policy on tackling inflation – IMF

The International Monetary Fund recommends the Central Bank of Tunisia focus monetary policy on tackling inflation, as the country struggles with high price pressures.

Additionally, the fund stresses the importance of increasing exchange rate flexibility and strengthening international reserves.

These are the main recommendations the fund had for the Central Bank of Tunisia as the IMF finished the third review of its four-year support programme initiated with the country in May 2016. The review unlocks funds worth 176.7824 million special drawing rights or $249.1 million, which brings total support under the agreement to $1.14 billion.

Since Marouane El Abassi became governor in late February, the central bank has adopted a tighter policy stance. It has increased the key policy rate by 175 basis points in two movements to 6.75%.

“The recent significant hike in the policy interest rate demonstrates the central bank’s strong commitment to price stability. Further rate hikes may be needed if inflation does not decelerate, especially as key interest rates remain negative in real terms,” says Mitsuhiro Furusawa, IMF’s deputy managing director.

But higher rates have so far failed to reduce inflation. The consumer price index rose year on year by 7.7% in April and May, above the 4.6% recorded during the same period in 2017.