Policy Rate in Iceland Remains at 15.5 Percent Skip to content

Policy Rate in Iceland Remains at 15.5 Percent

The Central Bank of Iceland announced yesterday that the policy rate would remain unchanged at 15.5 percent. Bank director Davíd Oddsson said the most important task ahead is to regain control of inflation.

Oddsson advised the government to use caution while devising a new budget and not to take any measures against a crisis that has not yet developed. That would only cause more problems and increase inflation further, he reasoned, ruv.is reports.

Oddsson added that he does not agree with the Confederation of Icelandic Employers (SA) that adopting a new currency would be a good solution.

The Central Bank does expect that a downturn in the economy lies ahead, although according to Oddsson, actions to stimulate the economy are premature.

“We believe that although there will be a recession, which we say is necessary after the great tension we have experienced, we are not heading into any bleak winter,” Oddsson said according to Fréttabladid.

Head of SA Thór Sigfússon told Rás 1 on RÚV Radio that perhaps it is time to consider whether the Central Bank’s policy-rate decisions have become a contributing factor to high inflation instead of working against it.

Sigfússon said high policy rates are working like a “sledgehammer” on the Icelandic economy and while companies are not able to access foreign funds they are forced to finance their operations with these high interest rates.

Sigfússon stated the Central Bank does not take this situation into consideration but rather expects the policy rate to drop when inflation drops.

Inflation is currently at 14.5 percent.

Click here to read more about the economic situation in Iceland.

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