Policy Interest Rates At Standstill, Purchasing Power Decreased

Despite economists‘ predictions, the Central Bank of Iceland chose not to increase its policy interest rates during its last meeting. The Central Bank has raised the interest rates 14 times in a row since 2021. On Wednesday, October 4, the Central Bank announced the current rate, 9,25%.

The Central Bank’s policy interest rates are a tool to keep inflation within reasonable bounds. Inflation in Iceland is currently 8%, reaching a high point of 9,9% in July of this year.

According to Governor of the Central Bank Ásgeir Jónsson, Iceland is in a unique position compared to the rest of Europe. Unemployment is 2,5% and interest rates are 9,25%, pointing to a powerful economy.

In related news, purchasing power in Iceland has decreased for the first time since 2012. The news follows a correction Statistics Iceland posted earlier in the week.

Originally, Statistics Iceland stated that purchasing power had increased by 2,4% in 2022. In fact, the correct calculations show purchasing power depreciating by 0,1% in 2022. Due to these corrections, purchasing power actually diminished by 5,2% in the second quarter of 2023, compared to the second quarter of 2022.