The Monetary Policy Committee (MPC) of the Central Bank of Iceland decided yesterday to raise the Bank’s key interest rates by 0.25 percentage points, from 4.25 to 4.5 percent and further increases are planned.
The Central Bank of Iceland. Copyright: Icelandic Photo Agency.
The main argument for increasing the key interest rates is the reaction to the worsening inflation outlook. It is currently 5.0 percent but is expected to increase to 6.8 percent in the first quarter of 2012, Fréttabladid reports.
Both the Confederation of Icelandic Employers (SA) and the Icelandic Confederation of Labor (ASÍ) criticized the move, calling it incomprehensible in light of the country’s economic recovery. They believe it will hinder the recovery.
Central Bank governor Már Gudmundsson stated yesterday that the key interest rate increase shouldn’t come as a surprise as it is consistent with the MPC’s earlier declarations.
The current account rate will be 3.5 percent, the maximum rate on 28-day certificates of deposit (CDs) 4.25 percent, the seven-day collateralized lending rate 4.5 percent, and the overnight lending rate 5.5 percent, as stated on the bank’s website.
Click here to read the Central Bank’s full statement.