Iceland keeps interest rates unchanged

The Central Bank of Iceland today decided to keep interest rates unchanged at 4.5 percent and the bank’s director said that a lot would have to change for rates to go down again.

The Central Bank of Iceland recently increased interest rates for the first time since the banking crash, amid renewed economic growth and higher-than-target inflation. Despite opposition from business and consumer groups within Iceland, the monetary policy committee had indicated the rate rise would probably only be the first of several.

The director of the central bank this morning explained that signs now point to higher economic growth in Iceland than previously expected and said that a lot would have to change for the bank to consider putting rates down again. They remain at 4.5 percent.

A statement released by the monetary policy committee states that the newest economic figures suggest that production growth and lowering unemployment have begun and that gradual interest rate rises are unlikely to stall that recovery.

On the other hand, the statement says, lower than expected inflation in August, a strengthening krona currency and the poor outlook on world economic markets meant that the committee did not feel it was appropriate to raise interest rates again right away.

Mar Gudmundsson, Director of the Central Bank of Iceland, told RUV that economic indicators look good. There is reasonable economic growth in Iceland predicted at around 2.5 percent — but will probably turn out to be higher than that with hindsight.

Gudmundsson said that the higher-than-hoped-for rate of inflation is reason enough to start hiking interest rates — but added that the overall picture is quite bright.