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Central Bank of Iceland

Central Bank Warns Against Pay Raises

Már Guðmundsson, governor of the Central Bank of Iceland, warns against excessive pay raises in a new video, saying they would inevitably lead to increased interest rates and unemployment in the country. His words are expected to ruffle some feathers amongst union leaders who are now working to do exactly that.

This morning, the bank revealed its plans to keep official interest rates the same as they’ve been. “We are now experiencing economic challenges due to a shrinking tourist industry,” Már said. “More companies are looking to reduce staff rather than increase and inflation is expected to rise due to a reduction in the value of the Icelandic króna.”

“The good news is that inflation predictions have lowered slightly after a rise just before Christmas, and due to this the Central Bank’s real interest rates have increased.”

Már then seemingly directed his words to union leaders, saying that “opposing forces have influenced our decision not to change official interest rates,” adding that “we shouldn’t experience capital decay unless we suffer any new blows. Strikes and pay raises that exceed our capacity would be exactly that kind of blow. The result would be increased interest rates and unemployment. Let’s try to make sure that doesn’t happen.”

Asked about the current redundancy in apartments in Reykjavík, Már said that a cooling in the housing market was expected after the past years’ upswing, RÚV reports. “I’m not that worried at the moment. We always expected things to eventually slow down, possibly lowering the króna’s high exchange rate and, in turn, lowering housing prices. This has come to pass.”

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