Central Bank of Iceland maintains interest rates at 9.25 percent, disappointing business leaders

The decision by the Central Bank of Iceland to maintain interest rates at 9.25 percent has sparked disappointment among business leaders. Gríða Margrét Oddsdóttir, the director of the Confederation of Icelandic Employers, expressed frustration during a morning briefing, emphasizing that the current rate has remained unchanged for an entire year and has not cooled the economy as intended.

The Central Bank’s governor stated that recent wage agreements have failed to significantly lower inflation as hoped. A long-term stability agreement made by labor unions in March aimed to create conditions for reduced inflation and interest rates, but results have not materialized. Sólveig Anna Jónsdóttir, the chairperson of one of the unions, criticized the governor’s decision-making, suggesting he should take responsibility for the situation rather than blame negotiating parties for the lack of anticipated outcomes.

Óddsóttir highlighted that the inflation rate is currently different from what it was a year ago, noting a decrease to around 4 percent when excluding housing costs. However, she raised concerns about whether the Central Bank’s assessment of necessary interest rates for economic stability is accurate, suggesting that high real interest rates have not been seen since 2009.

She further stressed the significant impact that housing prices have on overall inflation, with an 11 percent increase in rental costs being a particular concern. A clear strategy for increasing housing supply is imperative to help control inflation. Oddsdóttir called for a collaborative approach among monetary policy, labor market stakeholders, and the government to achieve economic stability, though acknowledging that it will take time.