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Central Bank Raises Interest Rates

The Monetary Policy Committee of the Central Bank of Iceland announced yesterday it would raise the bank’s interest rates by .25 percentage points. That brings the key interest rate to 5.75 percent.

Large pay increases are expected to cause inflation to increase beyond target. Besides, the fiscal budget proposal for 2016 includes some fiscal easing.

Although the krona is stronger now and global price developments more favorable than before, allowing for interest rates to be increased more slowly than expected, this does not change the need for a tighter monetary stance right now, that is, the increase of interest rates, because of growing domestic inflationary pressures.

The interest rates of the Central Bank will be as follows:
Overnight CBI rates: 7.5%
7 day collateralized lending rate: 6.5%
7 day term deposit: 5.75%
CBI current account rates: 5.5%

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