Central Bank of Iceland maintains interest rates at 9.25% amidst rising inflation

The Central Bank of Iceland has announced that it will maintain its interest rates at 9.25%, a level that has been in place since August of last year. The decision was made public this morning at 8:30 AM, following a meeting of the Monetary Policy Committee.

In a statement, the bank highlighted a slight increase in inflation since its last meeting after a period of decline. “Underlying inflation remains high, and price increases are broad-based, although the housing component is still a significant factor. Inflation expectations have shown little change, remaining above the target,” the bank noted. They cautioned that it could take some time to achieve an acceptable reduction in inflation.

In the past five years, interest rates have experienced a notable evolution. They stood at 4.5% at the beginning of 2019, followed by a series of cuts that brought rates down to as low as 0.75% later that year. However, a trend of rate hikes commenced in May 2021, leading to a total of 14 consecutive increases throughout the period.

Prime Minister Bjarni Benediktsson expressed concerns about the trend of borrowers switching from non-indexed to indexed loans due to high interest rates, stating that this could disrupt the balance in the housing market over the long term. Iceland’s banking analysis departments expect no rate cuts until the final quarter of the year, predicting that persistent inflation and high inflation expectations will influence the Central Bank’s decisions. This follows a slight rise in inflation rates noted in the last measurements, which fluctuated around 6% in recent months.