Central Bank Keeps Interest Rates Steady Amid Geological Unrest

Central Bank

The Monetary Policy Committee of the Central Bank of Iceland has decided to keep the bank’s interest rates steady at 9.25%, despite worsening inflation expectations and economic tensions. This decision reflects the committee’s caution due to the uncertain economic impact of the geological unrest on the Reykjanes peninsula.

Inflation expectations worsened

In a statement issued by the Monetary Policy Committee of the Central Bank at 8.30 AM, the committee announced that it would be keeping the bank’s interest rates unchanged at 9.25%.

The statement reveals that inflation slightly decreased month-over-month in October, registering at 7.9%. Underlying inflation also showed a decline. There are ongoing indications of a slowdown in private consumption and investment.

“According to the Central Bank’s new forecast, inflation expectations have worsened. The tension in the national economy has proven greater than previously thought, and the value of the krona has decreased. Inflation expectations remain high, and cost increases seem to have a more significant and prolonged impact on inflation than before.”

The announcement goes on to state that even though the effects of interest rate hikes in recent months are becoming more evident, worse inflation prospects suggest that further tightening of monetary policy might be necessary. 

“Despite this, the Monetary Policy Committee has decided to maintain current interest rates for now, given the uncertainty about the economic impact of geological unrest on the Reykjanes peninsula. The future monetary policy will continue to be shaped by the development of economic conditions, inflation, and inflation expectations.” 

The interest rates will be as follows:

  1. Overnight loans: 11.0%
  2. Seven-day collateralized loans: 10.0%
  3. Seven-day term deposits: 9.25%
  4. Current accounts: 9.0%

Journalists Criticise Grindavík Access Restrictions

Rescue workers assist Grindavík residents

The restricted access for journalists to the town of Grindavík is undermining the media’s role in reporting and accountability, two editors stated in an interview with RÚV yesterday. The Minister of Culture and Business Affairs has called for safe and reliable reporting from the area.

Restricted access since last Thursday

Journalists and reporters have not been allowed to enter the town of Grindavik since last Thursday when a system was implemented allowing only one cameraman and one photographer access to the area. They were then tasked with sharing their material with other media outlets. 

Yesterday, access for media personnel was completely restricted due to poor weather conditions. As noted by RÚV, the Union of Icelandic Journalists is considering actions in response to this ban. 

Media’s role being undermined

In an interview with RÚV yesterday, Erla Björg Gunnarsdóttir – editor of the newsroom of Vísir, Stöð 2, and Bylgjan – stated that the role of the media was being severely undermined: “The role of the media is to gather information, disseminate information, allow the public voice to be heard, and hold authorities accountable. These restrictions in Grindavik entirely prevent the media from fulfilling this role.” 

Þorsteinn Ásgrímsson Melén, assistant news editor of Mbl.is, agreed with Erla’s observations: “It’s not just that an entire town has been sidelined, it’s also the construction of these protective barriers, which are a massive undertaking.” 

“There’s a lot that needs to be monitored, and it’s natural for the media to keep an eye on things. Both for the residents, to be their eyes and ears on the ground, but also to check the power of the state,” Þorsteinn added.

Consideration is not everything

When asked whether the difficult circumstances facing Grindavík residents, and recent criticism of the media not showing adequate consideration, could have something to do with these restrictions, Þorsteinn replied: “Of course, consideration should always be shown, but if we always had to report on things from that standpoint alone, a large part of history would not be recorded.”

“Our journalists have heart,” Erla added. “They take precautions and show caution. The voices of Grindavík residents in recent days, those Grindavík residents who have participated in interviews, are so important. This is crucial for the public to gain some insight into the lives of these people.”

Both Erla and Þorsteinn expressed regret at the fact that there had been no consultation with the media regarding the current arrangement. “We are simply informed of how the arrangement is – and the arrangement is not suitable for the media,” Erla commented. “We need to stop treating the media like naughty children on a field trip to Grindavík. We cannot provide a convincing account of what is happening in Grindavík if we are not permitted entry”

“First and foremost, I would like to see this ban lifted,” Þorsteinn added. “I can see no reasonable explanation for the drone ban over the area, for example. No justification has been given.”

Restrictions contributing to misleading coverage

Speaking to RÚV yesterday, Lilja Alfreðsdóttir, the Minister of Culture and Business Affairs responsible for media affairs, expressed concern about the misleading coverage of the geological unrest in Reykjanes, especially in foreign media. She conjectured that this could be attributed to the media’s restricted access to Grindavík.

“I believe that enhancing safety measures, which I see as a priority, will benefit everyone. Once safety is assured, it’s crucial to improve the dissemination of information about the area. To achieve this, we need to ensure clearer access,” Lilja stated. “In my role as the Minister of Media, I place a strong emphasis on the importance of safe and reliable media coverage of the area. Regrettably, access has not seen the necessary improvements.”

When asked about improving access, Lilja stated that there had been extensive discussions among her fellow ministers about this issue, which had been brought up during a government meeting yesterday morning. 

Icelandair Sees Booking Decline Amid Reykjanes Unrest

Keflavík airport Icelandair

The ongoing geological unrest on the Reykjanes peninsula has led to a significant slowdown in inbound tourist bookings with Icelandair. The company’s CEO has emphasised that Iceland remains open to visitors and expressed solidarity with the evacuated residents of Grindavik.

Bookings to Iceland slowed significantly

Yesterday, the Icelandair Group – the owner and holding company of the Icelandair airline – issued a press release via GlobeNewsWire regarding the recent geological unrest on the Reykjanes peninsula. 

The press release notes that while the ongoing seismic activity had not impacted the company’s flight operations at Keflavik International Airport, booking flow for inbound tourists to Iceland had slowed significantly for the near term. 

Given that bookings during the winter months are made close to the date of travel, the current situation was affecting the company’s revenue generation for the remainder of the year; tourists to Iceland are an important factor in revenue generation for November and December.

With this situation ongoing, thee press release continued, the guidance – information or predictions provided to investors or the market – that Icelandair provided to the market on September 13 was no longer applicable. Furthermore, the ongoing uncertainty precluded the possibility of providing accurate guidance for the full year. The Company still expects, however, to return a net profit after taxes in 2023.

The press release also quotes Bogi Nils Bogason, President and CEO of Icelandair:

“We would like to emphasise that the seismic activity in Southwest Iceland has had no impact on flights to and from Iceland and the country is welcoming visitors. These events have, however, impacted the lives of people living in the town of Grindavik that has [sic] been evacuated and our thoughts are with them. As a leading airline in Iceland for decades, we are used to dealing with the natural elements and are well prepared for various different scenarios. We are in close contact with the authorities and scientists that are closely monitoring the situation and in the event of any changes to our schedule, we will communicate via our normal channels.”