The Central Bank in Iceland decided yesterday not to lower its key interest rate to fight the inflation. The interest rate, which was last raised in December, remains at 14.25 percent.
According to the director of the Central Bank in Iceland, Davíd Oddsson, it is better to have high interest rates for awhile rather than to have a long-term inflation. RÚV reports.
The Central Bank believes the inflation situation has improved, though it is still far from the Bank’s goal of 2.5 percent.
Since 2003 the inflation in Iceland has risen consistently from less than two percent to over eight percent in mid-2006. Since then, the inflation has decreased again to a current 6.9 percent.
Although the Central Bank is optimistic in reaching its goal of a 2.5 percent inflation within the next few years, it points out that the situation of the national economy is unstable.
In March the Central Bank in Iceland will review the situation again and decide whether to raise or lower the level of the key interest rate, or to keep it at the current level of 14.25 percent.
The key interest rate in Iceland is considered unusually high. By comparison, the Central Bank in the UK has a key interest rate of 5.25 percent and the Central Bank of Europe a rate of 3.5 percent.