Tunisia c.bank chief says ready to intervene vs inflation

Reuters

ABU DHABI, Sept 29 (Reuters) - Tunisia's monetary policy isstill in a tightening mode and the central bank will intervenewith various tools, including interest rates, if inflationstarts climbing again, Tunisian central bank governor ChadliAyari said on Sunday.

Speaking to reporters on the sidelines of a meeting of Arabcentral bankers in Abu Dhabi, he also said the country's foreignexchange reserves had rebounded to about 103 days' worth ofimports, which was a "more or less safe" level.

Tunisia has been struggling with high inflation and pressureon its foreign reserves as it negotiates a political crisis. TheIslamist-led government agreed on Saturday to resign after talkswith secular foes to form a caretaker administration, which willprepare for elections in an effort to safeguard the transitionto democracy.

Inflation fell for the second month running to reach 6.0percent in August, compared to March's 6.5 percent, which wasthe highest rate in at least five years. The central bank raisedits key interest rate by 0.25 percentage point in March, itssecond rate hike in seven months, to fight inflation.

According to official data, foreign currency reserves onSept. 25 totalled 11.291 billion dinars, the equivalent of 103days of imports, after inflows of foreign aid and an overseasbond issue. In June, reserves had dropped to 94 days.

In a statement on Thursday, an International Monetary Fundmission to Tunisia said: "Fiscal and external imbalances arecontinuing to worsen, and the reforms (most of which are alreadyin progress) are facing some constraints and are proceeding moreslowly than anticipated.

"The short-term risks are on the downside, and vigorousmeasures - including in the implementation of reforms - areessential, notwithstanding the constraints associated withpolitical developments."

Ayari said on Sunday: "We will see if the increase of therate of interest is justified or not. That depends on differentfactors including how inflation is behaving. So far we stillhave a rather high rate of inflation but it is starting tostabilise...and we expect it to decrease."

He added, "If by any bad luck we see inflation restart goingup, which is also possible, we will intervene with differentmeans including higher interest rates."

He predicted the inflation rate would be at 5.6-5.7 percentby the end of 2013, and around 4 percent by the end of 2014.

The government said this month that it expects the economyto grow 4.0 percent next year after an expected 3.6 percentexpansion this year.

Ayari predicted on Sunday that gross domestic product wouldexpand between 3.0 and 3.6 percent in 2013.

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