Icelandic Central Bank Rate Hike

August 23, 2023

Policymakers at the Central Bank of Iceland delivered an unexpected 50-basis point additional hike in the 7-day term deposit rate to 9.25%. The cumulative 375 basis points of tightening this year follows a combined 400 bps of increase in 2022 and 125 basis points in 2021. The pandemic low of 0.75% prevailed from November 2020 to May 2021. Today’s increase had not been widely expected because total CPI inflation has receded from 10.2% in February to 7.6% in July, but a released statement notes that improvement in domestic inflation, labor costs and measures of expected inflation have lagged behind the trend in overall inflation. This latest rate hike is meant to insure that the 2.5% inflation target is achieved.

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