Union leader calls rate hike absurd as rates near previous level

Vilhjálmur Birgisson, chairman of the Icelandic Federation of Labour and the Akranes Trade Union, has called it “completely absurd” that interest rates are again approaching their previous level, mbl.is reports.

The Monetary Policy Committee of the Central Bank of Iceland raised the bank’s key interest rate by 0.25 percentage points. The bank’s main rate, the interest rate on seven-day term deposits, is now 8 per cent.

Four committee members supported the decision, while one voted to keep rates unchanged.

“I readily admit that I am very surprised that the Central Bank should take this course,” Vilhjálmur said.

He said the decision sent the wrong message and that the basis for collective wage agreements had effectively collapsed. He said it would have been more appropriate for the bank to issue warnings to the labour market, retailers and the service sector, and encourage them to seek a joint solution.

Vilhjálmur said he would have preferred interest rates to remain unchanged or even be cut. A rate cut, he said, would have signalled that the Central Bank was prepared to help create a national consensus to overcome the situation.

He said it was “completely absurd” that rates were approaching 9.25 per cent again, the level reached in April 2024 when collective agreements were signed.

“In the first year, we managed to bring them down considerably, and now they are beginning to approach the level they were at before we embarked on this course,” he said. “This underlines the importance of finding solutions.”

Asked whether the decision could increase the labour movement’s support for talks on Iceland joining the European Union, Vilhjálmur said the problem would remain Iceland’s responsibility.

“There is no point in packing up the hammer and sending it to Brussels. The problem is not going anywhere. We will always have to solve it ourselves and find a solution,” he said.

Vilhjálmur said the time had come for politicians, the Confederation of Icelandic Enterprise, the labour movement and “everyone else” to work together to address the conditions that had developed in the Icelandic economy.

He said this could be achieved through a coordinated effort, but called it “an absolute scandal” to spend all the energy on EU accession talks while facing what he described as a huge problem. He added that Iceland would have to overcome its interest rate problems, inflation-indexation system and inflation before it could adopt the euro.