Policy Rate in Iceland Drops to 13 Percent Skip to content

Policy Rate in Iceland Drops to 13 Percent

By Iceland Review

The monetary policy committee of the Central Bank of Iceland announced this morning its decision to lower the policy rate by 2.5 percent to 13 percent. The interest rate on overnight loans will also be lowered by 2.5 percent and other interest rates within the Central Bank by 3.0 percent.

The Central Bank of Iceland. Copyright: Icelandic Photo Agency.

Since March the policy rate has decreased from 18 to 13 percent. In October last year, the Central Bank board of governors made the decision to increase the policy rate significantly, by six percent to 18 percent, mbl.is reports.

The Central Bank’s monetary policy committee has been under considerable pressure lately to significantly lower the policy rate, both from interest groups on the employment market and the government.

Earlier this week, Prime Minister Jóhanna Sigurdardóttir said that the policy rate is bound to drop as low as two to three percent at the end of this year, reasoning that all the prerequisites for lowering the policy rate rapidly are at hand.

Minister of Business Affairs Gylfi Magnússon said everyone agrees that the nominal interest rate must be lowered.

“Inflation figures for the past months have been much lower than they were when inflation peaked last fall after the collapse in the exchange rate of the króna. That provides flexibility to lower nominal interest rates at least as quickly as inflation,” Magnússon argued.

“I don’t expect anything other than that the monetary policy committee of the Central Bank will continue to lower the rate,” Magnús continued, commenting, “I would welcome a bolder move in terms of lowering the policy rate.”

Bjarni Már Gylfason, the economist of the Federation of Icelandic Industries (SI), declared his disappointment to mbl.is on today’s policy rate decision.

“We were expecting a considerably larger drop,” Gylfason said. “There is an underlying need for a much larger decrease in the policy rate and we just have to hope that the next steps taken will be along those lines.”

Click here to read more about the policy rate and here to read more about the inflation.

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