Iceland government accepts failing grade on economic policy

Iceland’s government has accepted a public failing grade over its handling of interest rates and inflation, mbl.is reports, citing Prime Minister Kristrún Frostadóttir.

A recent Gallup survey for Viðskiptablaðið found that seven in 10 respondents believe the government is performing poorly in efforts to lower interest rates, while 69% say it is doing poorly in bringing down inflation.

Among those who expressed a clear view, 87% gave the government a negative assessment on interest rates and 85% did so on inflation. Only 13% and 15%, respectively, gave it a positive assessment.

“We of course take this to heart,” Frostadóttir said when asked about the fading confidence in the government’s economic policy.

She said Iceland had faced difficulties in economic management for years and had struggled to keep inflation expectations low. During the previous parliamentary term, interest rates remained as high as 9% for a full year, while inflation barely fell below 5%.

“We got off to a good start but received external shocks,” Frostadóttir said, referring to factors such as rising oil prices. She said these had contributed significantly to inflation rising to 5.6%, almost one percentage point above the 4.7% assumption underpinning collective wage agreements.

“We will also need to focus on public finances and be even more careful than before not to fuel overheating,” she said. “That requires difficult decisions, but we are prepared to take them.”