Union Leaders Express Alarm at Central Bank’s Interest-Rate Hike

Ásgeir Jónsson, Governor of the Central Bank of Iceland

The Central Bank’s decision this morning to raise key interest rates by 1.25% has sparked a strong response from union leaders. Sonja Ýr Þorbergsdóttir, Chair of BSRB, has stated that the government needs to act to protect the most vulnerable. The Chair of the Federation of General and Special Workers in Iceland (SGS) has remarked that Icelandic households are being “devastated.”

Government needs to respond

In an interview with the radio programme Morgunvaktin (i.e. the Morning Shift), Sonja Ýr Þorbergsdóttir, Chair of BSRB, stated that it was necessary for the government to respond to the Central Bank’s decision to raise key interest rates, which currently sits at 8.75%.

“These actions have the greatest impact on those who earn the least. After all, inflation bites them the hardest. The government needs to take action to support this group, so as to see all of us through this period.”

As noted by RÚV, a new survey by Varða found that around half of wage earners are finding it difficult to make ends meet, with single parents and individuals in the rental market being particularly affected.

“It appears that action needs to be taken to support them. Then we look at the child benefit system and also that there needs to be some kind of rental brake and more support for those who are on the rental market,” Sonja observed. Interest rate hikes will hit those who have signed non-indexed mortgages at variable rates the hardest.

“There is also this question of how to assist this group. We’ve been hoping to ensure that overall housing support, whether you own or are renting, takes your financial situation into account,” Sonja concluded by saying.

A “knockout blow”

Finnbjörn A. Hermannsson, President of the Icelandic Confederation of Labour (ASÍ) told Mbl.is that the Central Bank’s decision to raise interest rates was “a knockout blow” to households in the country.

“Naturally, this is a complete knockout blow for households in the country. It’s that simple. It seems to me that the Central Bank is seeking recourse in the banks’ propaganda department. The Central Bank is clearly afraid of the banks, content to allow households to suffer … everyone seems to have realized, aside from the Central Bank itself, that the decision to raise interest rates only serves to fuel inflation.”

Icelandic households are being “devastated”

Vilhjálmur Birgisson, Chair of the Federation of General and Special Workers in Iceland (SGS), told Mbl.is. this morning that he was “shocked” by the Central Bank’s decision.

“I can say that I am utterly shocked over this path that the Central Bank has chosen. Let’s keep in mind that since we signed the collective agreements, policy rates have increased by 3%.” Vilhjálmur added that this single increase was just below the total interest rate increases of other nations since the start of the Ukrainian war.

When asked what effect he thought this increase would have on the upcoming collective bargaining negotiations this fall, Vilhjálmur responded with dismay: “I don’t know how on Earth we’re going to manage this situation that has arisen among Icelandic households. It’s absolutely crazy.”

“In the end,” Vilhjálmur continued, “inflation will start to decrease and, believe you me, the Central Bank will tout its success and say, ‘You see, we’ve succeeded.’” He added that Icelandic homes were being “devastated” by the Central Bank’s decision.

“The reason for the high rates in Iceland is the indexation. In this country, the bank managers sit back because they know they’re protected on all sides by the indexation; it’s become completely intolerable.”

At a press conference this morning, Þórarinn G. Pétursson, the Central Bank’s chief economist, addressed the idea that the increase in the number of households with indexed loans meant that the Central Bank’s monetary policy was no longer effective:

“Unlike what has been claimed in the public discourse, this does not matter. The influence of monetary policy is the same whether the share of index-linked loans is large or small,” he observed. “Claims that monetary policy pushes people into index-linked loans are true. Claims that it affects the mediation process of the Monetary Policy Committee are false.”

Snorri Steinn Reportedly Hired as Coach of National Handball Team

Handball, Handballer, Snorri Steinn

Snorri Steinn Guðjónsson has reportedly reach an agreement with the Icelandic Handball Association (HSÍ) to become the head coach of the men’s national handball team, Vísir reports. He will lead the team at the 2024 EHF European Men’s Handball Championship in Germany.

Extended negotiations

Negotiations between representatives of the Icelandic Handball Association (HSÍ) and Snorri Steinn Guðjónsson have been protracted, with talks appearing to have broken down last weekend. According to Vísir’s sources, however, it is now clear that Snorri will be introduced as the new national team coach over the coming days: “possibly less than a hundred days after the departure of Guðmundur Guðmundsson in February.

According to Vísir, Arnór Atlason – Snorri’s former teammate from the national team – will be hired as the national team’s assistant coach, although his contract has yet to be finalised. Arnór is the current assistant coach of the Aalborg handball team and head coach of Denmark’s U21 national team. He will relinquish both positions this summer and take over as assistant coach of TTH Holstebro in Denmark.

Among the first interviewed

As noted by Vísir, Snorri was among the first individuals that representatives from HSÍ informally interviewed as a possible successor to Guðmundur. Dagur Sigurðsson was also interviewed informally – and he subsequently criticised the association for their handling of his interview, which he characterised as “sloppy.”

Snorri Steinn, who is 41 years old, returned to Iceland in 2017 following a successful professional career abroad. He was hired as a playing coach of Valur, which he managed in concert with Guðlaugur Arnarsson.

Under Snorri’s management, Valur became Icelandic and Cup Champion in 2021 and 2022. Valur also secured a league title in 2020 and again this spring. The team also achieved notable success in the European League this winter and reached the round of 16.

Police to Keep Firearms from Council of Europe Summit

Jón Gunnarsson Alþingi

Minister of Justice Jón Gunnarsson has stated that the firearms bought for the Council of Europe Summit last week will not be sold. The capacity of the police had taken a leap after the summit, both in terms of training and equipment.

“No reason to sell”

In an interview with RÚV yesterday, Minister of Justice Jón Gunnarsson stated that he saw “no reason” to sell the firearms that were purchased for the police ahead of the Council of Europe summit last week: the police would be “better set” in the event that another meeting of this magnitude was to be held in Iceland.

“Who’s to say that there won’t be another big event like this here at some point, sooner rather than later; no one knows,” Jón Gunnarsson told RÚV.

As noted by the National Broadcaster, Arndís Anna Kristínardóttir Gunnarsdóttir, member of Parliament for the Pirates, was the first to draw attention to the issue in Parliament yesterday. She inquired of the minister what would happen to the weapons, now that the meeting was over. Jón replied that the authorities did not intend on selling the firearms.

“I’ve made the analogy that it’s akin to how newcomers to the national team gain a lot of experience by playing big national matches. This was our big national match on this stage,” Jón remarked on the floor of Parliament yesterday.

Significant improvement in police’s capacity

In his interview with RÚV, Jón stated that he didn’t believe there was “any reason” for the police to sell these weapons. “There is a big change in the capacity of the police after this meeting, in terms of education, training, and equipment,” Jón remarked. “I believe we’ve added three to five police motorcycles. We’ve also purchased a lot of clothing and protective equipment,” Jón added, citing the renewal and increase in police vests as an example.

When asked about the exact costs of purchasing this new equipment, Jón was unwilling to say, referring the matter to the police, who possessed information about which equipment was purchased and how much it cost.

Asked if the guns would be “put in a box and thrown into the attic” until the next meeting was held, Jón responded thusly: “Again, you’ll have to ask the police. I don’t think they have an attic, but they definitely have some storage room down in the basement, where a lot of equipment is kept.”

As noted by RÚV, data regarding the cost of purchasing equipment for the summit is not yet available, although it may be available later this week.

Central Bank Raises Key Interest Rates by 1.25%

Central Bank

The Monetary Policy Committee of the Central Bank of Iceland raised the policy rate this morning by 1.25%. This is the thirteenth rate hike in a row, with the bank’s main interest rate currently sitting at 8.75%.

Curbing inflation

In its thirteenth consecutive rate hike, the Central Bank announced this morning that it would be raising the key interest rate by 1.25%, bringing the bank’s main interest rate to 8.75%. The previous increase of 1% was announced in March.

According to the announcement, economic activity has been strong so far this year. The central bank’s latest economic forecast projects a notable increase in economic growth, expecting it to reach 4.8% for the year, a significant revision from the previous forecast of 2.6% in February. This revised projection takes into account the anticipated surge in domestic demand and the emergence of heightened activity within the tourism industry, both of which have contributed substantially to the optimistic outlook.

As noted by RÚV, the Governor of the Central Bank has emphasised the necessity of these interest rate hikes to combat inflation. Despite the twelve previous rate hikes, however, the Central Bank has not yet been able to bring inflation under control; the annual inflation rate measured 9.9% in April, well above the bank’s target of 2.5% (the annual inflation rate peaked at 10.2% in February).

The announcement notes that there is an increased likelihood that inflation will prove persistent; underlying inflation continues to increase and large price increases are measured in an increasingly large part of the consumption basket.

Read More: A Króna for Your Thoughts (Interview with Governor of the Central Bank Ásgeir Jónsson)