Iceland Central Bank Lifts Key Rate By 100 Bps

(RTTNews) - Iceland's central bank hiked its benchmark rate by another one percentage point to a five-year high to ensure that inflation eases back to the target within an acceptable time frame.

The Monetary Policy Committee of the Central Bank of Iceland, on Wednesday, decided to raise the key seven-day term deposit rate by 100 basis points to 4.75 percent, the highest rate since 2017.

The bank has raised the rate by 275 basis points so far this year. "The MPC considers it likely that the monetary stance will have to be tightened even further so as to ensure that inflation eases back to target within an acceptable time frame," the bank said.

The bank added that decisions taken at the corporate level, in the labor market, and in public sector finances will be a major determinant of how high interest rates must rise.

In May, inflation rose to 7.6 percent from 7.2 percent in April. The committee observed that house prices and other domestic cost items were strong drivers of inflation, and also global oil and commodity prices increased sharply.

Inflation expectations advanced by most measures and remained above target, the bank noted.