Central Bank of Iceland Raises Interest Rate to 1.0%

May 19, 2021

The Central Bank of Iceland today became the first Western European central bank authority to raise its interest rate. During 2020, the monetary policy committee had slashed its policy rate from 3.0% to 0.75% in five incremental cuts. But a released statement after today’s scheduled meeting showed that officials are taking current 8-year consumer price inflation high of 4.6% very seriously.

Inflationary pressures appear to be widespread, as underlying inflation is broadly similar to headline inflation. This is due to a number of factors, including the depreciation of the króna in 2020 and steep rises in wages and house prices. As a result, it is necessary to raise the Bank’s interest rates in order to ensure that inflation expectations are anchored to the target.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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