Tunisia Intervenes to Lift Dinar From Record Low

Tunisia’s central bank sold foreign currency this month to support the local dinar after it fell to a record low.

The North African country’s regulator sold the equivalent in foreign currency of 863 million dinars ($524 million) to the market in the week to May 17, it said in an e-mailed statement yesterday. The dinar advanced 0.4 percent to 1.6416 a dollar at 2:24 p.m. in the capital Tunis, the highest level on a closing basis in more than three weeks, according to BNP Paribas MENA prices on Bloomberg.

The central bank said it was forced to step in on demand for foreign currency from mobile phone operator Tunisiana and state-owned energy and oil companies, the statement said. The dinar has slid 12 percent since a popular revolt ended Zine El Abidine Ben Ali’s 24 years of rule more than two years ago, damping economic growth and prompting the government to seek an International Monetary Fund loan.

“The acceleration of the dinar’s drop in May was worrying, so it was up to the central bank to step in to restore confidence,” Samir Gadio, emerging markets strategist at Standard Bank Plc., said by phone. “Once confidence disappears, everyone tends to position against the currency, and if it’s significant, you could face a run on the currency. That’s what the central bank is trying to prevent.”

Moody’s Cut

Moody’s Investors Service downgraded Tunisia’s government issuer ratings to Ba2 from Ba1 late yesterday. The downgrade reflects the country’s “persistent political uncertainty and risk of instability,” undercapitalized government-owned banks, and the pressures on Tunisia’s balance of payments and government finances, Moody’s analysts wrote in a statement. The outlook was set at negative.

Tunisia’s benchmark 400 million euros of 4.5 percent bonds due in June 2020 fell for a third day, pushing the yield up two basis points, or 0.02 of a percentage point, to 5.3 percent. That’s the highest level on a closing basis since April 18.

Tunisia’s foreign reserves were the equivalent of 10.5 billion dinars as of May 15, enough to cover 96 days of imports, the central bank said. That’s up from 9.6 billion dinars in November which covered 91 days of imports. That compares with 12.6 billion dinars in January 2011 when Ben Ali was ousted.

Yearly Drop

The central bank has sold the foreign currency equivalent of 1.887 billion dinars since the start of the year, or about 33 percent of total foreign currency trading, it said in the statement dated May 17. It performed “regular intervention operations” since the start of the year “to pump liquidity into the foreign exchange market in accordance with its corrective role,” the regulator said.

The dinar has gained 1.6 percent since hitting a record low 1.6685 a dollar on May 14. Still, the currency’s 5.5 percent drop this year makes it the second-worst performer in the Middle East behind the Egyptian pound.

“Over the past couple of months, the authorities appear to have loosened their grip on the dinar,” Neil Shearing, William Jackson and Jason Tuvey, economists at London-based Capital Economics Ltd., wrote in a report yesterday. The decision is a result of low foreign currency reserves and Tunisia’s signing of a $1.75 billion IMF agreement last month, “a condition of which is likely to include greater exchange rate flexibility,” they said.

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