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Banks raise rates

Responding to inflationary pressures, the Central Bank of Iceland raised its base rate by 0.75 percent to 11.5 percent yesterday.

According to Davíd Oddsson, chairman of the board of governors of the Central Bank, inflationary pressures are driven by the depreciation of the Icelandic króna and the fact that GDP over the past 2 years had been considerably greater than expected.

The commercial banks responded immediately by raising rates of non-indexed loans and new mortgages.

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