Iceland’s central bank left its policy rate at 8 per cent after increases at three consecutive meetings. The unanimous decision comes as economic activity cools and unemployment rises, while inflation remains high. Governor Ásgeir Jónsson linked the prospect of lower rates to falling inflation; wage agreements and widespread indexation remain part of the policy debate.
Iceland’s central bank kept its policy interest rate at 8 per cent on October 7. The Monetary Policy Committee voted unanimously to leave it unchanged after increases at the preceding three meetings. The decision came as economic activity slowed, while inflation remained at its highest level in two years.[1], [2]
Governor Ásgeir Jónsson cited a cooling economy, slower growth and rising unemployment as reasons for the hold. He linked the prospect of rate cuts to falling inflation. Jónsson said much of the effect of earlier oil-price increases had passed through and expressed hope that inflation would decline next year.[1]
Jónsson described widespread indexation of wages and government spending as a concern. He warned that demands for larger wage increases could bring higher inflation and interest rates, and welcomed several unions’ decisions to keep their contracts in force. Unions and employers continued talks about the agreements. Wage increases around the turn of the year are provided under the 2024 collective agreements.[1]
Una Jónsdóttir, chief economist at Icelandic bank Landsbankinn, found the decision’s tone softer. She did not expect a recession despite slower activity, but said rate cuts could take time.[1]
