Iceland’s Central Bank Raises Policy Rate Again Skip to content

Iceland’s Central Bank Raises Policy Rate Again

Chairman of the Central Bank’s board of directors Davíd Oddsson announced yesterday that the bank would raise the policy rate for Iceland by 0.5 percentage points to 15.5 percent. In late March the policy rate reached a record high with 15 percent.

The reason for this decision is to fight growing inflation. “Inflation in the first quarter of the year was two percent higher than estimated in November last year, and it can be expected to grow further following the depreciation [of the ISK] in the past few weeks before it begins to drop again,” Oddsson said in explanation of the Central Bank’s actions at a press conference. Mbl.is reports.

Oddsson further explained that because of high household and corporate debt the depreciation of the ISK will cause a recession and the ongoing inflation will have the worst impact on households and companies carrying debt and jeopardize the stability of the financial system in the long term. “It is therefore of grave importance for the nation to stop the inflation,” Oddsson emphasized.

Oddsson said it is important that the currency rate of the ISK recovers from the dive it took in March. He stated that the Central Bank’s decision to increase the policy rate in March had been a step in the right direction, since the ISK has appreciated to some extent since then.

However, the increase in the policy rate alone will not solve the problem which has been created in the currency exchange market, Oddsson said. “Increased bond issues accessible to foreign investors should, on the other hand, open other channels for the influx of currency.”

Click here to read about when the Central Bank last increased the policy rate for Iceland.

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