Iceland Central Bank Hikes Key Rate By 50 Bps

Iceland’s central bank lifted its key interest rate for the fourth consecutive meeting as inflation outlook deteriorated amid persistent global price pressures and a rapid rebound in domestic economic activity.

The Monetary Policy Committee of the Central Bank of Iceland, on Wednesday, decided to raise the key interest rates by 0.5 percentage points to 2.00 percent from 1.50 percent.

The bank had raised its key rate by 25 basis points each in May, August and October.

The MPC reiterated that it will apply the tools at its disposal to ensure that inflation eases back to the target within an acceptable time frame.

According to the latest Monetary Bulletin, the economy is set to grow 3.9 percent this year instead of 4 percent projected in August.

GDP growth is seen at 5.1 percent next year and ease to around 2.5 percent from 2023 onwards.

Nonetheless, the bank cautioned that significant uncertainty remains, and as before, economic developments will depend on the path the pandemic takes.

The bank has raised its inflation outlook citing higher global prices, domestic economic rebound and rising wage costs.

The bank said inflation appears set to measure 4.7 percent in the fourth quarter of 2021, or 0.6 percentage points above the August forecast. Inflation is not expected to fall below 4 percent until next spring, and it will not fall below 3 percent until the fourth quarter of 2022.

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