June 13, 2018 / 2:21 PM / 2 years ago

UPDATE 2-Tunisia raises interest rates by 100 bps to 6.75 pct

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By Tarek Amara

TUNIS, June 13 (Reuters) - Tunisia’s central bank on Wednesday raised its key interest rate by 100 basis points to 6.75 percent, the second hike in three months, to tackle inflation that has reached the highest level since 1990.

The bank’s last rate increase was in March, by 75 basis points. Annual inflation hit 7.7 percent in May.

The International Monetary Fund said last month that anchoring inflation expectations through additional rate increases would be crucial if price pressures did not moderate quickly.

“The decision will have a negative impact on investment and on the cost of production which will rise significantly, But it is inevitable in light of the high rates of inflation,” said Ezzedine Saidan, a local analyst.

Inflation is expected to reach to about 9 percent by the end of this year for the first time, officials have said.

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 its fiscal deficit and create economic growth.

The North African country has said it needed $3 billion of loans to finance a deficit of $14 billion, and the central bank said this month the time was right to issue a Eurobond worth $1 billion. 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 last year.

Reporting By Tarek Amara Editing by Catherine Evans and John Stonestreet

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