Financial News: Iceland Central Bank Raises Rates By 25 Bps

Iceland Central Bank Raises Rates By 25 Bps Amid High Inflation

(RTTNews) - Iceland's central bank raised its benchmark rates for the third time this year to address elevated inflation and inflation expectations amid global economic uncertainties.

The Monetary Policy Committee of the Central Bank of Iceland decided to raise the interest rates by 0.25 percentage points. The rate on seven-day term deposits was lifted to 8.00 percent.

The bank has hiked its rates by 75 basis points since March. The increase in March was the first since August 2023.

"In light of high inflation and inflation expectations, the MPC considers it appropriate to raise interest rates to ensure sufficient monetary restraint," the bank said in a statement.

The bank expects inflation to rise further in the months ahead and then taper off relatively quickly next year. The bank noted that inflation is driven by rises in public levies and price increases caused by the Middle East war.

Underlying inflation has started to ease by some measures, aligned with the growing slack in the economy. The bank observed that the second-round effects from the aforementioned price increases appear to be less pronounced than originally feared.

Inflation expectations are still too high, as is underlying inflation, the bank said. Inflation is expected to decline rapidly in 2027 but significant uncertainty remains, especially as regards developments in the global economy and the domestic labor market, the bank added.

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