Full Percentage Point Hike of Iceland’s Policy Interest Rate

March 22, 2023

Whereas the Federal Reserve is expected to raise its interest rate only slightly today, the Central Bank of Iceland’s seven-day term deposit rate was lifted by a full percentage point to 7.5%. That increment represents a doubling of the previous 50-basis point hike last month, which in turn was double the 25-basis point moves in October and November. At 100 basis points, Icelandic monetary officials have returned to the size of the back-to-back increases last May and June, which had been the largest previous increments in the current monetary tightening cycle. The cycle began back May 2021 from a pandemic low of only 0.75% reached in October 2020. A statement released by Iceland’s monetary policy committee says that in the face of more widespread price increases, elevated expected inflation that exceeds target, a recent drop in its inflation-adjusted interest rate, a tight labor market and the fact that both inflation and domestic demand growth had recently exceeded what officials were presuming only a month ago, the need has become more urgent to forestall a wage-price upward spiral.

Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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