Iceland central bank holds rates, predicts ongoing economic growth

The Central Bank of Iceland has today decided to keep its benchmark interest unchanged this month and has predicted ongoing economic growth, despite international economic turmoil.

The interest rate of 4.75 percent will not change this period, despite continuing inflational pressure calling for rate rises. The last rate decision was in December, when the Central Bank also decided to keep the rate the same. The Bank warned it will likely have to raise the rate slightly soon if economic conditions remain the same.

The Central Bank of Iceland predicts 2.5 percent economic growth in the country this year and for the next two years. The global economic situation continues to worsen and as a result the terms of trade will be worse this year than had previously been thought.

The Icelandic exports market remains lively, though; and continues to beat expectations. The Bank’s economic forecast is similar to the one it gave out in November.

If the forecast proves correct, inflation in Iceland will reach a peak of around six percent in the first quarter of this year before falling back again. The Bank’s inflation target is 2.5 percent and the forecast predicts the country will reach that rate again early in 2014. It predicts and average annual inflation rate of 4.6 percent this year — which is half-a-percent higher than in the November forecast.

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