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|08 March, 2018

Tunisia central bank unable to defend dinar- governor

The current account deficit had hit 10% for the first time, Marouane El Abassi told reporters.

TUNIS- Tunisia's central bank is unable to defend the dinar with foreign reserves that have fallen to less than 80 days' worth of imports, the bank's new governor said on Thursday.

The current account deficit also hit 10 percent for the first time, reflecting "frightening" economic indicators that show the depth of the country's economic troubles, Marouane El Abassi said.

On Monday, the central bank raised the benchmark interest rate to 5.75 percent from 5 percent, a decision that Abassi said had been taken due to concerns that the bank might otherwise lose control of inflation.

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The central bank expected average annual inflation to hit 7.2 percent this year before falling to between 5 pct and 6 pct in 2019, a central bank official said separately.

"Nothing is more dangerous than inflation," Abassi told reporters at his first news conference since taking over as last month.

"The high level of inflation could hit the investment ... our decision is painful but it is necessary."

Annual inflation rose to 7.1 percent in February from 6.9 percent in January, its highest for nearly 28 years, data showed.

Tunisia has been praised as the only potential success story among the nations where "Arab Spring" revolts took place in 2011.

But successive governments have failed to trim deficits and create economic growth, and the country is under pressure from international lenders.

(Reporting By Tarek Amara and Ulf Laessing; Writing by Aidan Lewis editing by John Stonestreet) ((tarek.amara@thomsonreuters.com;))