Iceland’s central bank raised borrowing costs to a six-year high and hinted at further tightening as it tries to curb an overheating housing market that has driven inflation to its highest level in more than a decade.
The seven-day term deposit rate rose 75 basis points to 5.5% on Wednesday, in line with market expectations.
This is the eighth rate hike by Sedlabanki since May 2021, when it became the first central bank in Western Europe to raise rates.
“The outlook for inflation has continued to deteriorate,” the bank said in a statement.
The monetary policy committee, “considers it likely that the monetary stance will need to be further tightened to ensure that inflation subsides within a reasonable period of time”.
Inflation hit 9.9% in July, largely due to Europe’s fastest house price rally, and Sedlabanki now sees annual price rises peaking at close to 11% later this year.
The upward revision comes as the country’s economy is expected to grow faster than expected in 2022, thanks to strong private consumption and a rapid recovery in tourism.
Source: Capital
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