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Governor of the Central Bank
Photo: Governor of the Central Bank.

Central Bank Lowers Interest Rates for Third Consecutive Month

According to Governor of Iceland’s Central Bank, Ásgeir Jónsson, Icelandic businesses will get off lightly as far as the foreseeable economic contraction is concerned, RÚV reports. For the third consecutive month, the Central Bank has lowered interest rates, which have never been lower.

Following the Central Bank’s announcement yesterday morning that it would lower interest rates by 0.25%, the bank’s interest rates currently sit at a historic low: 3% (a 1.5% decrease since this spring). Ásgeir Jónsson hopes that the low rates will stimulate the economy, considering that current forecasts are less optimistic than before; the latest forecasts anticipate that the economy will grow by 1.6% next year, as compared to the 1.9% growth that was predicted in the previous forecast.

We’re witnessing the first downturn, in recent memory, where private consumption is not shrinking in step with the contraction of the economy. This year’s slight recession cannot be considered serious. If things go the way they seem to be going, we can be grateful for a relatively soft landing – for not suffering a more drawn-out recession,” Ásgeir stated.

Uncertainty within the global economy may, however, have a negative impact, especially as regards the trade war between the US and China. Such uncertainty may suggest that the Central Bank‘s forecasts are too optimistic.

“At the same time, we fear that things are too good to be true. We fear that our forecasts may be too optimistic, that we end up seeing a deeper global recession than expected. Such a thing will, of course, have an impact on our economy.”

Ásgeir added that this year’s significant lowering of interest rates has not fully manifested itself within the economy.

We are completely certain that this year’s lowering of interest rates will be felt next year. We’re using our monetary policy today to create new jobs tomorrow,” Ásgeir stated.

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