06 October 2021

Statement of the Monetary Policy Committee 6 October 2021

Monetary Policy Committee

The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to raise the Bank's interest rates by 0.25 percentage points. The Bank's key interest rate - the rate on seven-day term deposits - will therefore be 1.5%.

According to preliminary national accounts figures, GDP growth was slightly weaker in H1 / 2021 than was forecast in the August Monetary Bulletin . Growth in domestic demand was well in line with the Bank's forecast, however. Indicators imply a continued strong domestic economic recovery in Q3, and the GDP growth outlook for 2021 as a whole is broadly unchanged.

Inflation rose to 4.4% in September. The contribution from the housing component continued to increase, and housing accounted for a large share of headline inflation in September. Underlying inflation continued to ease, however, although it remains significant. On the other hand, the impact of temporary supply-chain disruptions, which have pushed manufacturing and distribution costs upwards all over the world, could persist longer than previously anticipated.

Although underlying inflation is declining, there is cause for concern in that inflation expectations appear to have begun rising again. It is too soon, however, to say whether they are becoming less firmly anchored to the inflation target.

The MPC will apply the tools at its disposal to ensure that inflation eases back to the target within an acceptable time frame.

Press release no. 25/2021
6 October 2021

The interest rates will be as follows:

1. Overnight loans 3.25%
2. Seven-day collateralised loans 2.25%
3. Seven-day term deposits 1.50%
4. Current accounts 1.25%

See further: Decision on Central Bank of Iceland interest rates and reserve requirements