Iceland central bank halts interest rate hikes

The central bank of Iceland has ended a series of interest rate increases due to anticipated rises for the country’s currency.

Wednesday saw Reykjavik’s Sedlabanki announce that it was to maintain the current rate of 5.75 per cent, marking a change of pace after lifting the figure on five occasions in the last 12 months.

Sedlabanki officials said in a statement, “The inflation outlook for the next two years has improved since the Monetary Policy Committee’s last meeting, although inflation is not expected to reach the bank’s inflation target until the end of the period,” Bloomberg reports.

The move came following the release of policy reports that suggested the Icelandic krona would average at 150.1 per euro in 2013, nearly 10 per cent higher than previous forecasts. Reykjavik passed legislation earlier in the year to close a loophole in currency regulation, pushing the krona’s value up 14 percent.

Asdis Kristjansdottir, a researcher at Reykjavik Arion Banki HF, told Bloomberg reporters, “The bank seems to anticipate that the krona will appreciate further through 2014, meaning that it will adversely impact Iceland’s balance of trade. At the moment the country needs to generate more foreign exchange to meet its foreign exchange obligations. I’m therefore surprised that the bank doesn’t use the opportunity to purchase foreign exchange in the markets while the krona is so strong,” Kristjansdottir said.