Iceland Central Bank Raises Policy Rates To Tame Inflation

Iceland’s central bank lifted its key interest rate for the fourth time this year and signaled further hikes to tame inflation.

The Monetary Policy Committee of the Central Bank of Iceland, on Wednesday, decided to raise the key seven-day term deposit rate by 75 basis points to 5.50 percent.

A similar higher rate was last seen in May 2017. The central bank has lifted the benchmark rate by 350 basis points so far this year.

“The MPC considers it likely that the monetary stance will have to be tightened even further so as to ensure that inflation eases back to target within an acceptable time frame,” the bank said in the statement.

The central bank has raised its economic outlook projection citing strong private consumption growth and a more rapid rebound in tourism. The economy is forecast to grow 5.9 percent this year, about 1.3 percentage points above the May forecast.

GDP growth is projected to measure around 2 percent each in 2023 and 2024.

In July, inflation rose to 9.9 percent, the strongest since September 2009. The bank forecast inflation to peak at nearly 11 percent late this year.

The bleaker inflation outlook reflects stronger economic activity than was forecast in May, as well as more persistent house price inflation and higher global inflation, the bank said.

Inflation is forecast to average 6.7 percent next year and not fall below 4 percent until early 2024, but it is expected to be close to target at the end of the forecast horizon.

Source: Read Full Article