Inflation remains high at 6.3 percent, Central Bank Governor Ásgeir Jónsson discusses interest rates in Iceland

The Governor of the Central Bank has stated that inflation must decrease before interest rates can be lowered. Currently, inflation stands at 6.3 percent. According to Ásgeir Jónsson, the primary reason for maintaining the unchanged interest rate is that inflation has not declined over the summer. He noted, “Inflation has not gone down this summer, and the cooling we hoped for has not materialized.”

When asked why the higher interest rates have not had the desired effect, Ásgeir responded, “We are seeing significant effects from these high rates. There’s just so much happening in the economy.” He highlighted that the economy has experienced rapid growth in recent years, with an approximate growth of 20 percent from 2021 to 2023.

The Central Bank’s current policy interest rate remains at 9.25 percent, as the economic environment continues to be dynamic. Despite high rates, underlying factors in the economy have contributed to persistent inflation levels.

As discussions around the economic outlook continue, the focus is on whether the anticipated cooling will ultimately lead to a reduction in inflation, allowing for adjustments in the interest rate strategy moving forward. The Central Bank’s approach reflects a cautious stance, prioritizing stability in the inflation rate before making further changes to monetary policy.