Central Bank Rate Hikes in Iceland and New Zealand

May 24, 2023

Iceland’s 7-day term deposit rate was lifted 125 basis points to 8.75%. Such had been asĀ  low as 0.75% prior to May 2021, 2.0% at the beginning of 2022, and 6.0% when 2023 started. With CPI inflation edged up to 9.9% and measures of long-term expected inflation also creeping higher, the statement released in conjunction with today’s third hike of 2023 indicates that more restrictive moves are likely coming: “it is necessary to tighten the monetary stance still further. It is especially important to prevent a wage-price spiral, particularly in view of the strong demand pressures in the economy and how soon the next round of wage negotiations will begin.”

New Zealand’s 25-basis point rate hike was smaller than the two earlier 50-basis point hikes done in 2023 and was accompanied by the unexpected signal from officials that the 5.5% new interest rate level likely represents the peak, although one that will likely be maintained well into next year. A record low of 0.25% had prevailed until an initial tightening in October 2021. New Zealand’s economy is in recession, although one of only modest degree. CPI inflation of 6.7% last quarter was not much below the 7.3% cresting point three quarters earlier.

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

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