The Monetary Policy Committee of the Central Bank of Iceland has announced today that key interest rates will be raised an additional 0.25%, with short-term interest rates (seven day term deposits), now sitting at 6%.
The increase in interest rate comes in response to October inflation, which rose slightly to 9.4% from September’s level of 9.3%. Previous raises to the interest rate were introduced in order to cool the market and fight inflation, but have not had the entire effect hoped for.
Interest rates in Iceland now rest at:
- Overnight loans 7.75%
- Seven-day collateralised loans 6.75%
- Seven-day term deposits 6.00%
- Current accounts 5.75%
With the Central Bank’s aim of stabilising prices, it has noted that price increases continue to be widespread, but that they hope to reduce inflation to 4.5% by the end of 2023.
In the Central Bank report, it is stated that the Icelandic króna has seen a depreciation since October, and that inflation rates in the bond market have also risen since last month.
With the new measures in place, the Central Bank reports an improved economic outlook for 2023, with an expected 2.8% growth in GDP, up from its previous estimate of 1.9%. This growth is accounted for by higher levels of domestic demand than previously forecast.
The Central Bank has also stressed the importance of developments in the labour market in bringing inflation back to acceptable levels, a reference to the previously postponed and now upcoming wage negotiations between many of Iceland’s largest trade unions and SA, the Confederation of Icelandic Employers.