Iceland inflation slows, interest rises

The rate of inflation has slowed in Iceland as the central bank increases the country’s interest rates.

Statistics Iceland reported on its website at the weekend that the rate of inflation in the North Atlantic nation dropped to 4.6 per cent in July, while consumer prices decreased by 0.7 per cent during the same time frame.

The news follows a move by the central bank in Reykjavik last month that saw the benchmark rate lifted 0.25 per cent to 5.75 per cent as officials continue to guide the country’s economic recovery and look to stabilise the Icelandic krona. The central bank says it is looking to reduce inflation to 2.5 per cent.

An official statement released least month by the central bank said, “Raising interest rates in May and again now in June has withdrawn some of that accommodation, as is appropriate in view of the recovery of the real economy and the deteriorating inflation outlook. As the recovery continues and spare capacity disappears, it is necessary that the monetary policy slack should disappear as well,” Bloomberg reports.

Analysts say the krona continues to rise after an effort by the government in March closed a loophole that was enabling investors to bypass capital controls on speculating on the currency.