Iceland central bank raises rate again

Iceland’s central bank said Wednesday it raised its main interest rate for the third time since May to combat a “bleaker” inflation outlook.

Central banks across the world are hiking their rates to combat soaring consumer prices, which rose after Covid restrictions were eased and surged even higher as Russia’s invasion of Ukraine sent food and energy prices through the roof.

Iceland’s central bank, Sedlabanki, said it lifted the rate by 0.75 percentage points to 5.5 percent following hikes in May and June.

The Nordic country’s economy is expected to grow by nearly six percent this year, 1.3 percentage points higher than previously forecast, thanks to “more robust” private consumption and a quicker rebound in tourism than projected.

But, the bank added in a statement, “the inflation outlook has continued to deteriorate”.

Inflation accelerated to 9.9 percent in July and is forecast to peak at nearly 11 percent later this year, it said.

“The bleaker inflation outlook reflects stronger economic activity than was forecast in May, as well as more persistent house price inflation and higher global inflation,” the statement said.

“In addition, inflation expectations have risen even further by most measures.”

The bank said it will likely further tighten its monetary policy “so as to ensure that inflation eases back to target within an acceptable time frame”.