Iceland central bank keeps benchmark rate at 8%

Iceland’s central bank has kept its benchmark interest rate at 8%, mbl.is reported on Wednesday. All members of the Monetary Policy Committee backed the decision.

The bank’s main rate, on seven-day term deposits, remains unchanged. The committee raised rates by 0.25 percentage points in August, May and March, after leaving them unchanged in February. Bank analysts had forecast no change.

Inflation has risen further since the summer, as expected, and now stands at 5.9%, its highest level in two years. The committee said the increase in measured inflation was mainly due to the effects of conflict in the Middle East and higher public charges. Underlying inflation has remained relatively stable at just over 4% for some time.

Although economic activity is slowing, the committee said measured and underlying inflation remain too high, as do inflation expectations. It said most indicators point to inflation easing relatively quickly next year, but uncertainty remains, particularly over global economic developments and the domestic labour market.

Given the uncertainty and the persistence of inflation and inflation expectations, the committee said it considered it appropriate to maintain tight monetary policy. Future decisions will continue to depend on economic activity, inflation and inflation expectations.

Central bank Governor Ásgeir Jónsson and Deputy Governor Þórarinn G. Pétursson were due to present the decision at a news conference at 9.30 a.m.