Central Bank Keeps Interest Rates Steady Amid Geological Unrest

Central Bank

The Monetary Policy Committee of the Central Bank of Iceland has decided to keep the bank’s interest rates steady at 9.25%, despite worsening inflation expectations and economic tensions. This decision reflects the committee’s caution due to the uncertain economic impact of the geological unrest on the Reykjanes peninsula.

Inflation expectations worsened

In a statement issued by the Monetary Policy Committee of the Central Bank at 8.30 AM, the committee announced that it would be keeping the bank’s interest rates unchanged at 9.25%.

The statement reveals that inflation slightly decreased month-over-month in October, registering at 7.9%. Underlying inflation also showed a decline. There are ongoing indications of a slowdown in private consumption and investment.

“According to the Central Bank’s new forecast, inflation expectations have worsened. The tension in the national economy has proven greater than previously thought, and the value of the krona has decreased. Inflation expectations remain high, and cost increases seem to have a more significant and prolonged impact on inflation than before.”

The announcement goes on to state that even though the effects of interest rate hikes in recent months are becoming more evident, worse inflation prospects suggest that further tightening of monetary policy might be necessary. 

“Despite this, the Monetary Policy Committee has decided to maintain current interest rates for now, given the uncertainty about the economic impact of geological unrest on the Reykjanes peninsula. The future monetary policy will continue to be shaped by the development of economic conditions, inflation, and inflation expectations.” 

The interest rates will be as follows:

  1. Overnight loans: 11.0%
  2. Seven-day collateralized loans: 10.0%
  3. Seven-day term deposits: 9.25%
  4. Current accounts: 9.0%

Blue Lagoon to Remain Closed Until November 30

The Blue Lagoon Iceland

The Blue Lagoon, along with its associated facilities, has extended its closure until November 30 due to ongoing geological unrest on the Reykjanes peninsula. Following the detection of sulphur dioxide emissions, an immediate evacuation of Grindavík was ordered earlier today.

Closure extended

Last Thursday, November 9, the Blue Lagoon announced that it would be closing its lagoon, hotels, spa, and restaurants owing to the ongoing geological unrest in the area. The closure was initially slated to last until November 16, at least, with the situation being regularly assessed.

Tonight, given that the geological unrest has continued, the Blue Lagoon announced that it would be extending its closure until November 30. As noted in the announcement, it is currently impossible to determine when or where a volcanic eruption might occur. The Icelandic MET Office, the Department of Civil Protection and Emergency Management, alongside a team of scientists from the University of Iceland are closely monitoring the situation and analysing ongoing developments.

Immediate evacuation ordered

Earlier today, residents of Grindavík were allowed a brief return to the town to collect valuables. Shortly before 3 PM, while around 90 residents were in their homes and businesses, the Department of Civil Protection and Emergency Management, in conjunction with the Suðurnes Police, mandated an immediate evacuation, signalled by town sirens.

The authorities later clarified that the rapid evacuation of Grindavík was prompted by readings from the Icelandic Meteorological Office’s gas metres, which detected sulphur dioxide emissions from the ground near Grindavík. The Suðurnes Police reported that the evacuation was completed in just 95 seconds. Officials express hope that they can allow residents to safely return to Grindavík tomorrow.

Full statement

Below you will find the full statement from the Blue Lagoon:

“The chances of a volcanic eruption on the Reykjanes Peninsula have significantly increased, initiating the precautionary evacuation of the town Grindavík to ensure the safety of residents. The evacuation commenced on the evening of November 10, following a Phase of Emergency declared by the Department of Civil Protection and Emergency Management.

At this moment it is not possible to determine when or where an eruption might occur. The Icelandic Meteorological Office, Civil Protection, and a team of scientists from the University of Iceland are closely monitoring the situation and analysing the developments.

Iceland is no stranger to volcanic activity, and there have been three eruptions on the Reykjanes Peninsula in the last two years. Icelandic authorities and local communities are well-prepared for such events, and Iceland has one of the world’s most effective volcanic preparedness measures. Iceland’s geoscientists possess vast experience in dealing with volcanic activities.

On November 9, Blue Lagoon made the proactive decision to temporarily close its facilities, affecting operations at Blue Lagoon, Silica Hotel, Retreat Spa, Retreat Hotel, Lava, and Moss Restaurant. Considering disruptions to our guests’ experience and the sustained pressure on our employees, these precautionary measures were taken to ensure the safety and well-being of all. The closure will remain in effect until 7 AM on November 30, at which point the situation will be reassessed.”