FX.co ★ Iceland Central Bank Holds Key Rate As Expected

On Tuesday, Iceland's central bank announced its decision to keep its benchmark interest rate at a 14-year high. The determination, reached by the Central Bank of Iceland's Monetary Policy Committee under the leadership of Governor Asgeir Jonsson, maintains the rate on seven-day term deposits at 9.25 percent.

It is noteworthy that since May 2021, the central bank has increased its key rate by an accumulated 850 basis points. The bank noted that inflation continues to decrease and inflation expectations, according to some indicators, have also slowed, yet they still surpass the desired target.

The bank anticipates a deceleration in economic growth this year due to a tight monetary stance. The positive output gap is larger than previous estimates suggested, and it's projected that inflation will decrease at a slower rate.

The Monetary Policy Committee concluded an elevated likelihood exists that the current economic conditions will enable a return to targeted inflation within an acceptable time frame. The determining factor for the formulation of future monetary policy will be the developments in economic activity, inflation, and inflation expectations, clarified the bank.