Central Bank Announces No Change in Policy Rate Skip to content

Central Bank Announces No Change in Policy Rate

Central Bank director Davíd Oddsson announced yesterday that the bank has decided to keep the policy rate for Iceland unchanged at 15.5 percent. According to Oddsson, the most important task ahead is to fight inflation.

“This decision sends out the message that the fight will continue to be difficult,” MP for the Independence Party Bjarni Benediktsson told Fréttabladid.

Gunnar Svavarsson, MP for the other ruling party, the Social Democrats, said it is always unfortunate when interest rates are high, the ISK gives in and the inflation is high.

“I regret the fact that the policy rate is not declining,” said chairman of the Progressive Party, Gudni Ágústsson. “It would have caused optimism and new hope.”

Steingrímur J. Sigfússon, chairman of the Left-Greens, the largest opposition party, agrees. He said he fears a difficult fall and an even more difficult winter ahead, predicting the government will become very unpopular if it proves incapable of fixing the economic situation.

“We would have preferred a drop [in the policy rate]. The economic system is cooling quickly, because of the international credit crunch, slower economic growth in world markets, completion of heavy industrial projects in east Iceland, lower fishing quota and the rising price of raw materials, among other reasons,” said CEO of Glitnir Bank Lárus Welding.

Welding said it appears as if the Central Bank reached its decision trying to react to an external environment, which it cannot control. “By keeping the policy rate level so high the bank is taking a certain risk in driving the economy into greater recession than is necessarily to reach target inflation.”

Director of Landsbanki Bank Sigurjón Th. Árnason agrees that it is a disappointment that the Central Bank did not lower the policy rate while the CEO of Kaupthing Bank’s operations in Iceland, Ingólfur Helgason, said it is positive that the Central Bank did not raise the policy rate even further.

“But we do believe that it is necessary to start taking the initial steps towards a series of lower policy rates,” Helgason added.

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