A Second Rate Hike in Iceland

November 2, 2011

The Sedlabanki’s seven-day collateralized rate has been increased by another 25 basis points to 4.75%.  The first such move was implemented on August 17 and followed by a pause at the ensuing policy meeting on September 21.  From March 2009 to February 2011, fifteen rate reductions occurred, slashing the key interest rate from 18.0% to 4.25%.  A statement released today affirms that Iceland’s economy continues to recover in spite of the wider European depressants and predicts that GDP probably will grow faster in 2011 and 2012 than predicted in the last full review made August.  On the other hand, inflation is developing more slowly than assumed because of the krona’s strength, which holds down imported cost pressures.  As the slack in productive resources diminishes, more rate increases will be required, but their timing is obscured by elevated uncertainties and will hinge ultimately on how inflation develops.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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